Hong Kong

HL Deb 18 May 1994 vol 555 cc247-318

3.4 p.m.

Lord Glenarthur rose to call attention to matters affecting Hong Kong; and to move for Papers.

The noble Lord said: My Lords, it is now some 18 months since the House last debated the broader issues affecting Hong Kong. There have been a number of developments in that time, some positive and some disappointing. Your Lordships bring considerable direct experience of Hong Kong and China to any consideration of the subject—and at a time when the report of the Foreign Affairs Select Committee of another place has just been published which explores relations between the UK and China up to and beyond 1997, it seems wholly appropriate for the views of the House to be placed on record. A further backdrop for the debate is, as I hope my noble friend Lady Chalker will be able to confirm, that the dialogue between Britain and China over Hong Kong is beginning to show more encouraging signs than for some time.

I hope that the debate will be constructive and forward-looking; indeed, I am sure that it will be. But it would not wholly surprise me if some contributions will question some of the decisions taken. That is perfectly legitimate and is a proper role for your Lordships. The one universally positive view that I am sure will be expressed from all quarters of the House is that it is the wish of us all to see Hong Kong prosper and thrive up to 1997 and beyond.

As the transfer of sovereignty over Hong Kong approaches, an increasingly awesome responsibility rests upon the shoulders of those who are striving to make that change a success. That responsibility lies upon the shoulders of the British Government and upon the People's Republic of China Government. Hong Kong has weighty responsibility. I am sure that all those features will be addressed this afternoon.

One note of sadness tinges today's debate, and I am sure that the House would like me to mention it. One of the first to put his name down to speak was Lord Sharp of Grimsdyke. His sad death leaves us all the poorer. He had great experience of China, and a firm grasp of those things which really matter to Britain in her relationship with China, not only over Hong Kong but in a more general economic sense. We shall miss his counsel; and we shall, I know, have his family very much in our thoughts.

I do not propose to dwell too much on the history of the Sino-British Joint Declaration of 1984. But I think that it is worth reminding ourselves that it was a hugely significant achievement. Its signing was a moment of considerable diplomatic success, which the world looked upon with cautious optimism. It is a pity that my noble friend Lady Thatcher and my noble and learned Lord Howe of Aberavon, who were very much its architects on the British side, are not able to be here today: I know that they would have liked to have been. My noble and learned friend Lord Howe is in Hong Kong which is, as he said himself in a letter to me explaining why he would not be able to speak, a perfect alibi. My noble friend Lady Thatcher hopes to be here later after fulfilling important engagements elsewhere.

The Joint Declaration was a prize hard won; no one was under any illusion about the difficulties that might emerge in carrying it forward to fruition. Those difficulties have, over the years, manifested themselves in many ways: lack of real progress in the JLG on many technical issues; increased concern about democracy in Hong Kong; and extraneous factors, such as the Vietnamese boat people. Those are just some examples. Yet all of this at a time when Hong Kong has continued to be a hugely vibrant success story, confounding those who believed that the approach of 1997 would cause a spiralling down of her success.

I think that we should remind ourselves of the interests that we are trying to serve in bringing the Joint Declaration to fruition. First among them of course must come Hong Kong. We are all looking for the continued stability, prosperity and security of her people. We want to see her continued success, not just as an integral part of China, but as a real economic powerhouse in the Asia-Pacific region. We look for the continued motivation of her people at a time which is bound to generate uncertainty and doubt. And we look more widely for the international community to play its part in helping to encourage China to live up to the obligations enshrined in the Joint Declaration and in the Basic Law of the Hong Kong Special Administrative Region.

So far as Britain's interests are concerned, we must be seen to have achieved honourably and in good faith the best possible future for Hong Kong in all the circumstances. We must be looked upon as having discharged our obligations in a way which is transparent and properly considered. We shall want to maintain considerable economic interest in Hong Kong's future success. We shall want to be strongly represented there in commercial and consular matters. We shall want to continue to uphold our responsibilities to British Nationals (Overseas) passport holders and British dependent territory citizens. We shall wish to preserve and develop our interest in China through Hong Kong as well as directly, and we shall want to work towards a progressively sounder relationship with China as her own political and economic future unfolds.

What of China's interest post-1997? She will, I am sure, want to see a successful and entrepreneurial Hong Kong. She will wish to see this not just because of Hong Kong's geographical and economic ties with mainland China, but because of the wider perspective. Hong Kong has a catalytic effect for China's interests involving the rest of South-East Asia and beyond. Hong Kong can help serve China's needs into the future. I believe that at the end of the day China will want international acclaim for what has been achieved on her part by successful implementation of the Joint Declaration. She will be aware that upon her shoulders will rest considerable responsibility. She may find midnight on June 30th 1997 a proud moment in her history. I hope she will feel that, with the eyes of the world upon her, it is also a rather daunting responsibility.

China will have clearly in her mind the revulsion that the free world felt at the excesses of Tiananmen Square. It was that dreadful business which did more than anything else to provoke very understandable concerns about Hong Kong and her future. It was the horror of those scenes in June 1989 which made it inevitable that confidence in and about Hong Kong in relation to the Joint Declaration would be much harder to achieve. Tiananmen Square has been a catalyst for many of the tensions on all sides over the past few years—a backdrop of blood if you like, against which plans for the future of Hong Kong were to be developed and ultimately were bound to be judged. It was those events which reinforced pressure for increased numbers of directly elected seats to LegCo as a buttress to what some feared could transpire after 1997. At the same time concerns arose about the compatibility between existing electoral laws in Hong Kong and what the Basic Law envisages.

The "through train" (those elected to LegCo in 1995 being able to remain in office through 1997 until elections in 1999) was always regarded as an important concept in retaining confidence in Hong Kong—a concept hitherto endorsed by China. But at all times it had been recognised as a tender plant. The arrival of a new Governor, a difference of pace and style, and a more vociferous clamour for sustainable democracy by Hong Kong people, very probably gave the impression in Peking of a change of policy, particularly when coupled with the Governor's 1992 proposals for electoral and constitutional changes to take place before the 1994 elections to municipal and district boards, and the 1995 elections to LegCo. That is an understandable Chinese reaction. Despite the Governor's comment that the eight or so main changes proposed were only that —proposals—many would say that China's reaction to them was predictable.

One could argue that what had all along amounted to an extremely slow, complex and frustrating set of negotiations was bound to reach a climax in some sort of major dispute with China. But my suspicion is that, having worked our way round, through or over many of the obstacles over the years, democratic issues were those of the greatest sensitivity. I believe therefore that, despite the Government's stated position of it being discourteous to Hong Kong to consult first with China privately about the proposals, this is what should have happened in this exceedingly sensitive area. International law may have nothing to say about the spirit of the Basic Law, or the Joint Declaration, but this spirit is a human feature we all recognise too well.

Such an approach, however risky, might have paved the way for the admittedly limited degree of change proposed and lessened the risk of the dislocation of our efforts over Hong Kong which we have faced in recent months. The Government's case against doing so— argued in the White Paper and supported by the Foreign Affairs Committee report —seems to me more a question of fitting the circumstances to the facts in a rather beguiling way, than the other way round.

Hong Kong's views in this matter are of huge importance. She, after all, has to live with the outcome; and the changes are pretty unexceptional, designed in part to maintain confidence in the probity of Hong Kong as a place to do business. But the proposals touched a very raw nerve with China, partly because of their content, but more, I suspect, because of the manner of their promulgation. The events of 1989 were, as I have said, bound to give rise to an air of increased expectation about safeguards for Hong Kong—both in the territory and at home. I do not find anything exceptional in that. What I am concerned about is the manner in which those expectations can be brought effectively to fruition.

China is an emerging economic power; she has a seat in the permanent 5. She is oriental in custom and approach. She has her pride—as we have ours—but I wonder sometimes whether we do not judge her just a little too harshly when she reacts indignantly to the somewhat adjusted pace and style of our apparently very belated democratic proposals. I am left asking myself whether, in carrying forward these proposals, which of course we have every right to do—and which LegCo may well amend—we fulfilled every sentiment attached to the meaning of the word "diplomatic", and may have imposed limitations on our own wish for a successful "through train" and all that that should bring in terms of confidence.

The reaction of the PRC Government to the Governor's proposals has been brittle, to say the least. It has included some very public snubs to the Governor —most recently over Lu Ping's visit to Hong Kong. I hope that the Chinese Government realise that this sort of reaction does not do them any good. It also seems to run markedly counter to the encouraging views expressed by many senior figures in Peking, and I think elsewhere, that the need to keep talking about wider aspects, whatever the strong views held about the democracy package, is essential.

Another reaction was an outspoken threat to United Kingdom companies wishing to do business with China. Here I must declare an interest as deputy chairman of Hanson Pacific Limited, a subsidiary of Hanson PLC; and as an adviser to British Aerospace. While the threats were real enough, I must tell the House that when I visited Hong Kong and China in early March, I found thankfully no evidence of any trade discrimination. This was exceedingly reassuring. The EC Commissioner, Sir Leon Brittan, took a very strong line when he went to Peking, and Her Majesty's Government were rightly not to be intimidated. The threats would in any case hardly be conducive to China's membership of GATT or possibly even to renewed most favoured nation status. And since then Prime Minister Li Peng has made it clear that there will be no discriminatory policy towards British companies.

Having said that, I believe it is perfectly possible for us to maintain our principles while driving a hard bargain for the benefit of Hong Kong, without tarring ourselves with charges of sleight of hand. Britain has enormous future economic benefits to be derived from China—and China has enormous future economic benefits to derive from Britain as her economic reforms gather pace. She has a very real wish to engage in dialogue about commercial matters. So I think that a little enlightened self-interest is no bad thing and need not conflict with our obligations to Hong Kong.

There are two other subjects on which I must touch: human rights in China and the United Kingdom's responsibilities towards certain minorities in Hong Kong who do not have right of abode in the United Kingdom. International concern about human rights in China is considerable and understandable. It is all very well to adopt a "holier than thou" attitude, but again it is important to encourage self awareness in China about how a fundamental, if gradual, reappraisal of their position can help them. We should be encouraged by an understanding that China is, as the Foreign Affairs Committee report states, coming to recognise the legitimacy of debate on the subject. We should go on encouraging China—bilaterally, multilaterally, private-ly and publicly—as that report suggests. I very much support the tone that the report strikes.

When read across to Hong Kong, I very much hope that the preservation—indeed, development—of human rights in the territory can be enshrined post 1997. That seems a fundamental aspect of assurance which her people will need, and it will have to be addressed by Her Majesty's Government with great care as they consider their response to the FAC report.

As to the second matter—non-ethnic Chinese British dependent territory citizens and war widows—here I must, not for the first time, strike a critical note. Circumstances have changed since 1986 when the Hong Kong nationality order was before your Lordships. I gave certain assurances then on behalf of the Government. I gave them in good faith. The words that I used were drafted by me personally and reflected the circumstances as far as we could see them at that time and looking into the future.

By refusing to acknowledge the current climate affecting some 7,000 non-ethnic Chinese BDTCs and a mere 52 wives and widows of ex-servicemen, or doing so grudgingly, and not allowing them full British citizenship as the Foreign Affairs Committee report recommends, I believe—and I do not like to say so— that the Government are not only acting meanly but also dishonourably. I honestly believe that the Government's position is unsustainable. Those people are special cases and do not raise a thin-end-of-the-wedge immigration argument. They are special to Hong Kong's unusual circumstances. I believe that the Government have a duty to these people. Fudged assurances about unrestricted access do not properly address that duty.

Let me end on a more upbeat note. It is very easy to be critical. It is quite another thing to be charged with the responsibility for discharging the immensely complex transition for Hong Kong which both Britain and China face. China's position as a world power and as a developing economic power is a fact with which we have to come to terms. She is a different, yet vastly exciting country. We should not expect to find affinity with every aspect of her politics or her culture, any more than her people find total affinity with ours.

Hong Kong, as part of China, but with her own unique set of special arrangements, is better poised than most to be a catalyst for China's development; and China for Hong Kong's future prosperity.

The omens are not discouraging—quite the opposite. We should continue to discharge our obligations to Hong Kong cautiously and honourably. We should do so clearly bearing in mind the fact that a long-term developing relationship of Britain with China is as much part and parcel of Hong Kong's interests as it is of our own. My Lords, I beg to move for Papers.

3.23 p.m.

The Minister of State, Foreign and Commonwealth Office (Baroness Chalker of Wallasey)

My Lords, all who care about Hong Kong are glad that my noble friend Lord Glenarthur has initiated this debate. I am pleased to see many in the House today whose acquaintance with Hong Kong is much longer and deeper than my 14 years. Your Lordships will understand if I single out the noble Baroness, Lady Dunn, who has travelled far to be with us, and the noble Lords, Lord MacLehose and Lord Wilson of Tillyorn, who both did so much to lay the foundations for Hong Kong's present success.

Today's debate is naturally an occasion for taking stock and for looking back at developments since this House last debated Hong Kong in December 1992. I hope that we can also use it as an opportunity to look forward at the 1,100 or so days remaining of the British administration of the territory and particularly at the prospects for Hong Kong beyond 30th June 1997.

First, however, a few words of history. Britain's policy has always been, in the words which Sir Richard Luce used in another place in December 1984, to build up a firmly based democratic administration in Hong Kong in the years between 1984 and 1997, but to do so in ways which are consistent with our obligations under the Joint Declaration and with the Basic Law and any other agreements and understandings between Britain and China on the pace of democratic development in Hong Kong.

None of that changed in 1992. What was new, as my noble friend Lord Glenarthur said, was the mounting pressure in Hong Kong for faster progress towards a legislature returned wholly by direct election. Much of that pressure can be traced back to the tragic events of June 1989 in Peking and their traumatic effect on Hong Kong people. A new political awareness was expressed in successive Motions passed by the Legislative Council. The British and Hong Kong Governments had a clear responsibility to respond.

In 1992, moreover, the existing electoral law in Hong Kong was in many respects quite different from the arrangements envisaged in the Basic Law and the associated texts. If there was to be any prospect of the final legislature under British rule metamorphosing at midnight on 30th June 1997 into the first legislature of the Hong Kong Special Administrative Region, it would have to have been returned under arrangements similar or identical to those envisaged in the Basic Law. Doing nothing in respect of the arrangements for the 1994–95 elections in Hong Kong was never, therefore, an option. The Hong Kong Government had to legislate.

I know that your Lordships are familiar with the package of proposals that followed. By any objective standard they were modest, exposing us to criticism for their timidity as well as their boldness. Their purpose was and is to establish in Hong Kong fair and open election arrangements acceptable to the people of Hong Kong and consistent with our obligations under the Joint Declaration. They are intended to minimise the process of manipulation of Hong Kong's legislature and to underpin the rule of law and the free society which are so crucial for the people of Hong Kong and for the territory's importance as a centre for international business.

In presenting those proposals to LegCo in October 1992 the Governor made clear that we had to take account of the opinions of both the present and future sovereign powers. But he also pointed out that it was not an option in modern Hong Kong to try, behind the back of an increasingly confident and assertive legislature, privately to agree with China on that legislature's further development. If nothing else LegCo would ultimately have to pass the necessary legislation.

We nevertheless wanted, if at all possible, to move ahead in agreement with China. Last year we spent more than eight months and 17 rounds of talks in Peking trying to reach agreement with China on the way forward for constitutional development in the territory. We were prepared to offer substantial changes to our original proposals in a sincere effort to find a middle way acceptable to both sides. But our interlocutors were unwilling to compromise, so reluctantly we decided to put proposals to LegCo which had not been agreed with China.

We cannot at this stage predict with certainty what the outcome of the Legislative Council's present deliberations on the arrangements for the 1995 elections will be when they conclude, we hope by the end of the LegCo session in July. It is for the members of LegCo to make up their own minds. As the Governor has often said, we cannot force the Hong Kong people to go further than they would wish; nor would it be right for us to oblige them to go less far.

Those of your Lordships who have recently been in Hong Kong will confirm that the sky has not fallen in as a result of developments over the past two years. There is widespread support for the Governor and for the inspiring lead which he has given to the territory. Only last week a poll showed that nearly 70 per cent. of senior British businessmen in the territory believed that the general public would benefit from the Governor's proposals. Much credit must go to the people of Hong Kong and those who represent them for the calm and confident way in which they have tackled the business of democratic development.

Some of those who have been sceptical of the Government's approach to constitutional development —like my noble friend Lord Glenarthur—have given the impression that deep and irreversible damage has been done to all co-operation with China. The truth is rather different. Chinese Ministers and officials have stressed that co-operation in other areas will continue. We, too, attach the highest importance to working with China over the range of Hong Kong issues. More widely still, Britain and China share important interests— diplomatic, economic and in the area of international security. Indeed, my noble friend was quite right to say that there is no shortage of enlightened interest.

Most of the issues now outstanding between Britain and China over the future of Hong Kong are technical, not political. But solving them all is very much in the interests of Hong Kong and of China. With good will and common sense, no issue is insoluble. And solving them is what needs to be done if Hong Kong's remarkable success story is to be sustained.

Many of your Lordships are well familiar with the symptoms of that success. But a few facts may help put it in perspective. Over the past decade Hong Kong's average growth has been some 6.5 per cent., more than double the rate for OECD countries. Hong Kong is now the world's eighth largest trading economy. In his most recent budget in March, Hong Kong's Financial Secretary was able simultaneously to cut taxes, raise expenditure, notably on social services and education, and increase the reserves—a feat which, for all his many skills, my right honourable friend the Chancellor has not yet managed to perform in another place.

A significant feature over the past decade has been the growing interdependence between the economies of China and Hong Kong. Hong Kong is now said to account for about two-thirds of foreign investment in China. Some 24 per cent. of China's exports go to or through Hong Kong. Hong Kong has the largest container port in the world handling a great deal of traffic in and out of China. None of that has been affected by our difficulties with China over constitution-al development.

Nor is there any evidence that those difficulties have damaged Britain's trade with China. Our exports rose by over 70 per cent. last year. They continued to grow in the first three months of this year. One example of the continuing pattern of business was the notably successful mission to China earlier this year led by my noble friend Lord Howe, the Parliamentary Secretary at the Ministry of Agriculture.

Chinese Ministers and officials have said that they wish trade and politics to be kept separate. We welcome that approach. We are confident that together Britain, China and Hong Kong will continue to profit from the extraordinary scale and pace of economic exchanges between them. And we welcome China's re-entry into the international bodies governing the world trading system just as soon as China can show that it is prepared to accept their principles.

There are many other issues that my noble friend raised, and I am sure that they will be raised again in debate. If I may, I shall leave a response on those until the end. However, in the short time left before sovereignty over Hong Kong passes from Britain to China there is much to be done. No one imagined that this transfer of sovereignty was going to be an easy exercise. But we will not be, nor are we being, deflected from our duty to the people of Hong Kong. They have turned their territory into one of the wonders of the modern world. We mean to help them complete the task in good faith, and successfully, in accordance with the Joint Declaration. It is a unique enterprise of truly historic significance. It is one on which the United Kingdom and China are together embarked; and we are embarked for the benefit of all the people of Hong Kong.

3.35 p.m.

Lord Archer of Sandwell

My Lords, not only all sections of your Lordships' House but the people of Hong Kong will be grateful to the noble Lord, Lord Glenarthur, for enabling us to debate the matter for the first time in 18 months. From these Benches, perhaps we may echo what he said: that this debate will be the poorer for the absence of Lord Sharp of Grimsdyke.

Over the past few months it has become clear that there are two views as to the policy which might be pursued in relation to Hong Kong. It will be surprising if they do not emerge in the course of the debate. The first is that the British Government are still the trustee for the people of Hong Kong and under an obligation to maintain so far as possible their claims to representative government and to the standards of human rights established by the international community. We must, so the argument runs, assert those claims firmly even though they are unlikely to receive the sympathetic response of the Chinese Government.

The alternative view is that there is nothing which the United Kingdom can achieve in the face of Chinese intransigence. Our right of audience in the matter will expire after three years; and all the cards are in Chinese hands. If the Chinese refuse to concede what we ask, there are no sanctions available to us, and we will merely be left looking ridiculous. So, the argument proceeds. Meanwhile we forfeit any prospect of at least some minor concessions by agreement.

As so often, each view contains a germ of validity which means that we would do well, if possible, to avoid a stark choice between confrontation and surrender.

There are three elements in the situation worth bearing in mind. First, while clearly we have no sanctions which would bring China to her knees, the Chinese Government are not wholly indifferent to the good opinion of the rest of the world, first, because every government likes to be loved—it is a psychological need of those in government, democrats or tyrants, that they want the good opinion of the world public—and, secondly, because China would have much to lose, for example, by losing membership of GATT. China would have much to lose if the United States were to withdraw preferential trading status. While it is true that the American Government have their own agenda in the matter, they are not wholly indifferent to the future of Hong Kong.

The second element is that the Chinese Government are not homogeneous. The messages which have been emerging from the Xinhua News Agency are to the effect that with the ending of negotiations on the constitution, all agreements between China and the United Kingdom are abrogated. But in March Mr. Lu Ping, the director in Beijing of the Hong Kong desk, was saying that the Basic Law is still in place, and he added that some senior Chinese officials did not quite understand the Basic Law—which some have construed as a rebuke for Mr. Zhou, the director of the Xinhua News Agency. At a recent meeting of the National People's Congress, a resolution recommending the abolition of Hong Kong's political structure was firmly squashed.

Attitudes to Britain are not unanimous. Clearly, there are those within Government in China who think of Britain as the colonial power of 150 years ago, still intent on humiliating China. But again and again I speak with British people who have visited China with delegations of various kinds, and in virtually every case they report not only that they met with generous hospitality but that they were questioned as to why Britain does not have a higher profile in China. They would like to see more British books, more British academic delegations and more British companies selling their goods as vigorously as their European and American counterparts. I have no means of knowing whether their comments are justified. I mention it only to suggest that the Chinese Government are not universally anti-British and we would do well in the style of our dealings with China to strengthen the hands of our friends.

The third factor is one which was mentioned by the noble Lord, Lord Glenarthur, that Hong Kong's economy is extremely buoyant, as the noble Baroness, Lady Chalker, said. The GDP per head is now higher than that of the United Kingdom. The Chinese Government are not likely to wish to see that trend reversed. Of course, we should not overrate the importance of Hong Kong in the whole spectrum of Chinese concerns; but Hong Kong, with its present way of life, is likely to be an economic asset to China. The fear expressed by the pro-Beijing press in Hong Kong that the colony would be bled of its assets has proved to be unfounded. The reserves have transpired to be not only what was predicted by the Hong Kong Government but greater than that prediction.

The only sensible conclusion from all this is that we are not condemned to impotence, but that genuine dialogue is likely to achieve more than gesture politics. I suggest three corollaries. First, Mr. Qian Qichen, the Foreign Minister, recently confirmed that the break-down of the constitutional discussions did not preclude co-operation in other matters which a moment ago the noble Baroness, Lady Chalker, described as technical, not political. There are a number of areas where patient, detailed negotiation, particularly within the Joint Liaison Group, may be well repaid. An obvious example is the construction of the airport.

Perhaps I may mention a different one. There is a great deal to be done on agreeing what amendments, if any, are needed to the legal system to make it consistent with the Basic Law under which Hong Kong will be ruled after the transfer. I hope that the noble Baroness will be able to tell us at the conclusion of the debate what progress is being made in relation to that. But it is encouraging that the Chinese Government consider it important to clarify the law. Clearly, the intention is that the law will be observed.

There is work to be done on the details of land disposal and on the future of the Civil Service and a number of other matters which may never merit a chapter in the history books, but are of great importance to the individuals who are affected by them.

Secondly, there is how we seek to influence China's policy in the field of human rights. No one can pretend that the Chinese Government have a commendable record. The International Society for Human Rights has only this week published a horrifying study of the forced labour system in China. I have never believed that in the international fora where human rights are discussed, we should soften our judgments towards any country because we may have other fish to fry. I hope that we, together with the remainder of the international community, will judge China by the same standards as we would judge anyone else. If the Chinese Government expect any dispensations as a price of concessions in the negotiations, they misunderstand the purpose of international human rights institution instruments.

As to human rights in Hong Kong itself, the Chinese authorities have hardly increased confidence by the 12-year sentence recently passed on Xi Yang, the reporter for the Hong Kong newspaper, the Ming Pao Daily News. That is bound to cast a question mark over the guarantee of future press freedom under the Basic Law.

It is hardly surprising that Miss Anna Wu is seeking to introduce into the Legislative Council her Human Rights and Equal Opportunities Commission Bill, and that a substantial number of members of the council seem to wish to discuss it. I venture no opinion on the merits of the Bill, but I hope that the Governor, who, despite all the arguments about democracy, still appears to have a veto over what Bills are discussed, will reconsider his decision not to permit the Bill to be discussed, particularly in view of the recommendation for a human rights commission in the House of Commons Foreign Affairs Select Committee report.

Should we not also address those human rights which lie within our own competence, in particular the matter referred to by the noble Lord, Lord Glenarthur, as to British citizenship for the special cases which he mentioned?

Finally, there is the future of electoral reform. It is hardly surprising that the Chinese comment that, after 150 years in which the British expressed little enthusiasm for electoral reform in the colony, their Damascus road conversion seems to have come before they leave. But recriminations about the past are academic. Any move forward must be from where we are now.

As the noble Lord, Lord Glenarthur, pointed out, and as the noble Baroness, Lady Chalker, emphasised, it is the people of Hong Kong who will benefit or suffer from any decisions about Hong Kong's constitutional future. I believe that we should be guided by their views as to where their welfare lies. Having accorded them a Legislative Council and sought to make it more representative, surely we should listen to the opinion of the Legislative Council as to whether and how it wishes to see future negotiations.

I believe that all parties in this House wish well to the people of Hong Kong for the future, a future in which we hope to participate. How we translate those good wishes into action must be largely a matter of listening to them.

3.47 p.m.

Lord Wilson of Tillyorn

My Lords, we all have reason to be grateful to the noble Lord, Lord Glenarthur, for this chance to discuss Hong Kong. I suppose it could be said that there is never the right moment to have such a discussion; things in Hong Kong always move on, and that is one of its great virtues. However, surely it must be right that every now and then we should try to stop and take stock of what is happening. It is right that we should do it now when it is only slightly over three years before British administration of Hong Kong comes to an end and, therefore, the end of the story of Britain's largest surviving and historically most successful dependent territory.

There is a useful by-product in having a debate of this kind: it is an opportunity to hear from my noble friend Lady Dunn who has come especially from Hong Kong. She has a unique blend of direct personal experience and wisdom which will be of great benefit to the House. However, that pleasure is tainted by sadness about those who cannot be with us, like Lord Sharp of Grimsdyke.

There are certain specific points on which we can take stock. One of them is arrangements for the Legislative Council. We have come to, or indeed passed, a turning point with the breakdown in negotiations with China on the arrangements for the Legislative Council through 1997. I do not intend to dwell on how we got into that position; I prefer to look ahead to see where we go from here.

The first need is to clear our own minds on the consequences of where we are now. The Chinese have said that if there is no agreement with them and if the proposals now before the Legislative Council, or LegCo, go through—and I think we must assume that that means the present proposals or something like them —then those arrangements will not survive 1997. There will be new elections for a new Legislative Council, in accordance with the Chinese interpretation of what is laid down in the Basic Law. That statement, I believe, needs to be taken seriously. If it is formally confirmed, after the legislation is passed, then it would be wrong to assume that things will somehow be different when it comes to the day in 1997. If so, it will be a great pity that the so-called "through train" does not apply to LegCo in 1997. That "through train" concept was one of the significant and positive achievements in the period immediately following the success of the Joint Declaration in 1984.

Nevertheless, a through train does, after all, have more than one carriage. If the LegCo carriage is not to go through, then there are other carriages which must and should go through. One of those is arrangements for members of the Civil Service. They are a key group in the success of Hong Kong. An enormous amount depends on their skill and knowledge and the commitment that they have always given to Hong Kong. Arrangements badly need to be made to ensure that there is continuity of jobs, and continuity in the people who are doing them through the change of sovereignty in 1997.

The law is another area where much needs to be done. As the noble and learned Lord, Lord Archer of Sandwell, just said, a mass of legislation needs to be localised before 1997 so that it can survive; and a mass of international agreements have to be adjusted so that they can survive through 1997. Air service agreements are perhaps just one example among many, but they are very important indeed to the economic prosperity of Hong Kong.

All of that will mean an immense amount of hard work for the Joint Liaison Group that was set up specifically to carry out that task, and whose work, sadly, has been all too bogged down recently in a political quagmire. That cannot be good for the future of Hong Kong.

The airport is another area where there is need for a great deal of hard effort and practical common sense. It is good to see that there is now to be a meeting of the airport committee later this week. The post-1997 Hong Kong Special Administrative Region (SAR), and indeed the economy of the whole of southern China, have a great need for that new airport as soon as possible. All of that means, and needs, co-operation with China. Such co-operation is not an optional extra. It is a very real necessity for Hong Kong and for its future.

In the difficult political situation which Hong Kong faces it is fortunate that the economy is doing so well. As always, that is a credit to the energy, initiative and determination of the people of Hong Kong. But it is the phenomenal growth of the economy of southern China that has enabled the people of Hong Kong to use their talents so successfully—to use them, indeed, so successfully that per capita GDP in Hong Kong now exceeds that of the United Kingdom.

Tribute should also be paid to the work of successive financial secretaries in Hong Kong. One of the most distinguished of those, Sir John Bramridge, died less than two weeks ago. He served Hong Kong well. The work that he and other financial secretaries did made it possible this year for the present financial secretary, as the noble Baroness the Minister just said, to announce in his budget both expenditure increases and tax decreases. That is surely something for which most finance Ministers around the world would give their eye teeth.

Despite economic success, Hong Kong inevitably faces political strains and difficulties over the next few years. This was always going to be a difficult period. Recent arguments have made it harder. At such a time it will be very important to avoid artificial divisions in Hong Kong society. What matters after all is the interests of Hong Kong as a whole, and of the Hong Kong people as a whole. This should not be a time for withdrawing into rival bastions of those who may be for or against the Hong Kong Government or for or against the Chinese Government. What is needed is the skill and commitment of all those who are capable of bridging the gap between the present Hong Kong Government and China, and capable of doing it for the future of Hong Kong and of its people. What is needed at all levels is contact, not isolation.

Some of those who will be influential in the future of Hong Kong may know little about the detailed administration of Hong Kong. After all, it is not too easy to know. But it is in the interests of all concerned that they should know more. There is a saying from the Chinese classics: 'Those who know don't speak; Those who speak don't know". Perhaps it could be adapted to read: 'Those who know can't advise; Those who advise can't know". Ways, informal if necessary, should surely be found to make sure that those who give advice to the Chinese Government on the future administration of Hong Kong are well-informed on how the present administration works. Of course, that has to be done in a way that does not undermine the work of the Joint Liaison Group, and in a way that does not do damage to the fact that it is the task of Britain and of the present Hong Kong Government to administer Hong Kong right up to the end of June 1997. But where there is a will, there is always a way. Hong Kong has always been particularly good at finding a way round if the direct route proves to be impassable.

Despite all the difficulties, I remains optimistic about the future of Hong Kong, and about the important economic role that it will continue to play after 1997, to the benefit of the people of Hong Kong and indeed of the whole of China. The economic growth of China—of the Pearl River delta in particular, but also of Shanghai and the Yangtze Valley—will be one of the key economic facts of the next few decades. Hong Kong will have a crucial part to play in all of that.

To get from here to there will not be easy. But we have a very real responsibility to ensure that that process is as smooth as possible. When there are practical things that can be done—for instance, the noble Lord, Lord Glenarthur referred to the plight of the non-Chinese ethnic minorities in Hong Kong—which may be relatively small but which are enormously important to those who are concerned, then surely we should do them. In everything that we do our guiding star must surely be not the short term, but the medium and long term. We must do as much as we possibly can, wherever possible in co-operation with China, to achieve what is right and beneficial for the people of Hong Kong and for the success of the Hong Kong SAR after 1997.

3.58 p.m

Lord Geddes

My Lords, it is conventional on such occasions to thank the proposer of the Motion for bringing the subject matter to our attention. Even without such conventions, I would—and indeed I do —thank my noble friend Lord Glenarthur most sincerely for a very timely Motion on Hong Kong. As the noble and learned Lord, Lord Archer, said, it is nearly 18 months since we had the last one, and it becomes an increasingly important topic.

I feel like a pupil thorn between two gubernatorial roses. But I am sure that both such outstanding previous governors of Hong Kong will agree with me—indeed, the noble Lord, Lord Wilson of Tillyorn, has already said so—that the paramount issue at stake is the future of Hong Kong's people. That, and that alone, is the subject of overriding importance.

Britain's unique duty and opportunity are to ensure that Hong Kong's prosperity remains intact and that it retains the greatest state of stability that can realistically be achieved. That surely is the only way in which Britain can acquit itself honourably and Hong Kong can look toward life under China's sovereignty with the reasonable hope and expectation of continuity.

In my submission, in this context there are two elements to be examined which for convenience can be called the concrete and the abstract. By the former I mean the practical and predominantly economic matters which make Hong Kong so outstandingly successful —for that is what Hong Kong is: a highly successful international business community. Without such business success it could be said that Hong Kong would revert to being a rocky outcrop. But to continue to be so successful, the environment, particularly for business, must remain stable; and to ensure that, the rule of law, the independence of the judiciary and the freedom of the press must be assured. The safeguards provided by the Joint Declaration and the Basic Law must at all costs be preserved. There is too much at stake to sacrifice them on the altar of temporary political gain.

I turn to what I loosely termed abstract matters. I regret that at this point I must part company with the Government. Of course democracy is the ideal to which we aspire; but I seriously question whether a fully fledged Western-style democracy is either attainable or appropriate for Hong Kong. One could say that in Asia it is an alien concept, and certainly not one that can be imposed overnight. In my opinion, the language and expertise of Westminster cannot be imported into such a different culture without considerable adaptation. Change must be a gradual development from within in order to be of permanent value.

The arguments over whether the Governor's proposals for electoral reform accord with the Basic Law and what was agreed in correspondence between the Foreign Secretaries have been so well rehearsed that it would be superfluous to repeat them. It is clear that the Chinese believe strongly that the proposals do not comply with the agreements. That is the essence of the matter—the enormous difference between the literal construction of a document according to English legal principles and the oriental regard to the complete picture, the "spirit" of it. Both sides have now become so firmly entrenched in their positions that I doubt whether the parties can extricate themselves and make progress.

The idealism of the Governor, much though I applaud it, needs to be tempered by realism. Attainable and sustainable targets should be the objective. Only then can the people of Hong Kong acquire the necessary self-confidence and feeling of security, for uncertainty and fear are not good building blocks for stability and prosperity.

At all costs we must avoid undermining what has already been achieved. What was gained for Hong Kong in the Joint Declaration and the Basic Law was and is valuable. It should not lightly be put at risk. The degree of its potential fragility and the best—or perhaps I should say worst—example of the breakdown in understanding between the British and Chinese sides is given in paragraph 171 of the report of the Foreign Affairs Committee of another place. The whole paragraph refers to an exchange of correspondence between the committee and the present Chinese ambassador in London, Mr. Ma Yuzhen, in February 1994 (incidentally, not in 1993, as printed in the report).

In a letter dated 8th February 1994, Ambassador Ma wrote: 'The return of Hong Kong to China, far from being merely a geographical concept, is to be understood in its full sense. In other words, it is a full recovery of sovereignty consisting of returning sovereignty and administrative power". In its report, the committee stated that it found those words "even more disturbing" than some contained earlier in the same letter. In my opinion, the committee failed to hoist on board the fact that China insists that full, not partial, control of Hong Kong must be transferred on 1st July 1997 from the United Kingdom to the People's Republic of China; but—this is the important point and was strongly emphasised by Mr. Lu Ping in his speech in Hong Kong only 12 days ago— China has undertaken that she would then immediately "pass" to Hong Kong all the "rights" specified in the 1984 Joint Declaration as reinforced and expanded in the 1990 Basic Law. Both those documents specify a high degree of local autonomy for Hong Kong for 50 years, including separate legislative, legal, economic, administrative and social systems and the continuance of the "current social and economic system in Hong Kong" and its "lifestyle".

In his speech of 6th May, Mr. Lu Ping stated quite categorically that: we have to adopt the policy of letting Hong Kong people rule Hong Kong and allowing Hong Kong to enjoy a high degree of autonomy … as stipulated in the Basic Law. After 1997, Hong Kong will enjoy its own administrative, legislative and judicial powers". It is interesting that he brings up that word "administrative". He continued: All daily affairs, except those concerning foreign affairs and national defence, will be managed by Hong Kong itself. In that same speech he went further and stated: I foresee that the principle of one country, two systems, will not change not only within 50 years but much longer". The abstract and concrete elements need to be fused to ensure Hong Kong's future. The reported attitude of some of Hong Kong's business community that business is booming and politics irrelevant is, in my view, potentially dangerous. Business must understand how important it is to get the politics right and politicians need to understand what business needs and wants. The same goals are not enough. They need to work together to achieve them.

I believe that the two factions, contrary to some popular belief, are not totally separable. It is heartening that Mr. Lu Ping said in that same speech of 12 days ago (I thought that I had finished quoting but there is one more quotation to come) that: cities like Shanghai can never take the place of Hong Kong because, no matter how developed Shanghai becomes, it will remain socialist. Shanghai will serve the country"— that is, the People's Republic— as a socialist metropolitan, while Hong Kong will play a different role in its capacity as a capitalist Special Administrative Region. We have been repeatedly told by our leaders that Hong Kong shall not be dealt with as we did with Shanghai". Such statements must be of considerable encourage-ment to Hong Kong. Nevertheless, practical reason must prevail and in that context I endorse Sir Percy Cradock's view, given in evidence before the Select Committee, that failure to pursue a policy of co-operation with China will leave Hong Kong worse off.

I am sure that I am not the only one to have heard the suggestion that trade with China can continue unaffected by the diplomatic impasse. But, equally, good diplomatic relations make better trade relations. We cannot rely on third parties to apply pressure solely on our behalf. Now is not the time for expensive principles or abstract idealism. We should not even consider jeopardising Hong Kong's future by viewing her as an instrument by which to bring about change in China. Hong Kong may lead the way by example; but she cannot be burdened with the responsibility and cost of being the catalyst.

The inestimable value of Hong Kong to China lies in its economy. What China is looking for is an economic but not a political bridge. We have three years left to get it right and we cannot depend upon or look to anyone else to do it for us. Without doubt it is an important element of the process that as much as possible of the rest of the world be "on side", not least to help ensure that whatever is achieved now is preserved. It is up to us to put a workable and acceptable framework in place which has the capability to survive the handover and allow business to continue to flourish under both our and the Chinese regime. Only thus can we fulfil our duty towards Hong Kong, to whom our moral responsibility extends far beyond midnight on 30th June 1997.

It is to me of the greatest sadness that political relations between the United Kingdom and the People's Republic of China are at their lowest ebb for three years. Rightly or wrongly, Beijing is thoroughly disillusioned with what it regards as the antics of Her Majesty's and Hong Kong's Government. In my limited experience of China, and particularly of Hong Kong, it is quite extraordinarily difficult for an occidental mind to understand that of an oriental, and vice versa. It is, at the very minimum, of immense sadness that there appears to exist a diplomatic impasse at the top level. By quiet diplomacy, and particularly that of listening, it just may be possible to break that impasse. But if it is not, please allow the lower political and diplomatic levels to speak with each other just as all business levels have done so successfully.

4.12 p.m.

Lord MacLehose of Beoch

My Lords, I too thank: the noble Lord, Lord Glenarthur, for introducing the Motion. It is indeed most timely and he made an excellent speech. I might add that he was an extremely successful Minister responsible for Hong Kong and it was his good work which reopened negotiations with the Vietnamese resulting eventually in the return of Vietnamese boat people to Vietnam. Like previous speakers I want to begin by laying some stress on the economy of Hong Kong because it is such good news in a picture too often dominated by bad news on the political side. Inevitably I shall deal with that.

To most people in Hong Kong, as with most people here, it is the economy—their livelihood—which matters most. The continuing economic success of Hong Kong is closely bound up with the even greater success, indeed staggering growth, created in China by Deng Xiaoping's policy of opening to the West and general economic liberalisation. Such growth in a country as vast and disparate as China is bound to lead, from time to time, to problems. It may be that such problems are appearing at this time. But the general thrust of Deng Xiaoping's policy of reform seems now to be irreversible. Moreover, the rising tide of economic activity in China has been accompanied by the great swell of increasing trade throughout the western Pacific. Hong Kong and its people are well placed and likely to continue to prosper from both those aspects.

I am glad that the noble Baroness did not think that the prosperity of Hong Kong would be affected by present political problems. That is indeed good news. The report of the Foreign Affairs Committee referred to the, seriousness of the breakdown in negotiations and the probability of the disbanding of the Legislative Council in 1997". I venture to add that, assuming the proposals before the Legislative Council are passed, the council's disbanding in 1997 is not so much a probability as a certainty. It is as well therefore to face squarely what that implies. It is that in 1997 things will simply be managed according to the decision of the National People's Congress of 4th April 1990 attached to the Basic Law; that is to say, the chief executive of the SAR will be responsible for forming the new government and for elections to a new Legislative Council. The proportion of seats allocated to geographic and functional constituencies and to persons returned by an election committee will be as set out in the Basic Law. But the details of the elections, about which we have been negotiating for so long, will be settled by him without further reference to us. In other words, failure to agree in the negotiations means that China will proceed unilaterally in 1997 just as we are preparing to proceed unilaterally this year. That is sad. Instead of a Sino-British relationship that would have favoured quiet dialogue over the points of detail that the change in sovereignty gives rise to, one must expect a period during which there is all too little contact, all the details being worked out without reference to us. Perhaps the Minister will confirm that the planning processes for the SAR are already starting in the PWC; that is, the preliminary working party of the Preparatory Committee.

The prospect now is two-and-a-half years of uncertainty, speculation and rumour—thoroughly undesirable in itself and daunting to say the least to the public services that must carry the work of administration through to the new government of the SAR? I was not surprised that my noble friend Lord Wilson, a previous Governor like myself, also focused on the situation of the public services. Those in Hong Kong are, in my experience, second to none and their members, like ours, are essentially apolitical. The work that they do and the professionalism with which they do it are an invaluable asset to the peace of mind of people in Hong Kong and to the businessmen and investors who supply the motor for the territory's prosperity and livelihood.

Because the breakdown of negotiations over elections means there will be no "through train" in the legislature, it is upon the public services that the public and the new government must rely to preserve the necessary continuity. I hope therefore that the noble Baroness will say what the Government are doing to maintain the morale and the confidence of those services. I hope that she will also explain to what extent the deep expertise of the members of those services is being made available to the preliminary working party of the Preparatory Committee where no doubt it will be badly needed. I hope she will be able to deny a report I have had that members of the public services have been forbidden from having any contact with the committee.

The Joint Declaration left many points of detail to be settled by discussion, and in the comparatively benign atmosphere of 1984 that was a reasonable expectation. Indeed, a certain amount was settled at that time. Then came Tiananmen. Understandable reaction in Hong Kong and the United Kingdom made the Chinese leaders profoundly suspicious of British intentions, and the benign attitude stopped dead. My noble friend Lord Wilson took the shock of the new and desperately disappointing situation. But after a pause, a dialogue re-commenced—with some results and an expectation of more. But because of the suspicion in Peking, the strongly awakened fears in Hong Kong, and the generally tense situation, it was a time when extreme caution was called for in any move we made.

I remember that when I left for Hong Kong my predecessor's parting words to me were, "Murray, remember, in Hong Kong, if you move a stone you never will know what will come out from underneath it." That could well be written above the desk of any new Governor. The fact was that at that time, if we were to maintain a relationship with China that would enable us to agree with them the practical details relevant to the transfer of sovereignty so necessary for the well-being of Hong Kong, we had to proceed with extreme caution. Instead in October 1992 this whole high-profile, constitutional move, against Chinese objections, was made—if not, legally speaking, in breach of previous agreements, near enough to make the Chinese feel a deliberate trick had been played on them.

The last time we debated this issue in December 1992, the noble Baroness, Lady Blackstone, described what had been done as too clever by half. That is about right. I would say that, however sincerely the spirit in which this move was made, however good the intentions, it has proved a very serious mistake. I have already described how alternative arrangements will be made by the new chief executive for elections without reference to us. Our actions, which are likely to achieve that result, may be honourable in intention and acceptable in parliamentary terms but they seem unlikely to do the people of Hong Kong any good. We shall have raised their expectations to a level that we are unable to realise for them. But there are other matters with an immediate and practical implication for the administration of the territory and livelihood of the people. In fact, there is a long list of things awaiting settlement with the Joint Liaison Group if there is not to be uncertainty or a vacuum in 1997. I hope very much that the noble Baroness will let us know how things are progressing in the Joint Liaison Group with regard to the airport and container terminal, franchises straddling 1997, adaptation of laws and so on. I realise that some progress has been made, and indeed is being made now, but it is small in terms of what is needed. It is like approaching Becher's Brook the first time round. To some extent this slow and frustrating progress is due to bad relations over the electoral issues. While those electoral issues appear insoluble at present it does not mean that we cannot make progress over practical issues.

I am critical of the manner in which the attempted reforms have been approached at this time. I realise that I am out of date, and I know that there is considerable support for the reforms in Hong Kong. But I wonder whether that support is not more a tribute to Chris Patten's personal, deserved popularity and his ability as a communicator; and perhaps, in some part, to an assumption that the British Government can deliver on the expectations they have encouraged him to raise. Moreover, there is naturally a closing of ranks behind a popular and sincere Governor under such scurrilous attack from Chinese officials and media. I wonder whether the implications of what is being done now for what will follow in 1997 are fully realised. I shall be very interested to hear what my noble friend Lady Dunn has to say. I fear that there may be a mood of disillusionment with Britain and with the British Government when it becomes apparent that all these activities on the constitutional front, sadly, have so little practical content for the people of Hong Kong. I hope my noble friend Lady Dunn will say that that is rubbish and that there is full confidence in the British Government in Hong Kong.

The buoyant economy and the prospect of that continuing in Hong Kong and China must help to keep up confidence among the people. They are indeed prospering, and I only hope that the political considerations will not be allowed to interfere with that, as indeed I think they will not. There was an excellent speech by Lu Ping, from which the noble Lord, Lord Geddes, quoted, which I think is very relevant to Hong Kong's future. He said: I would like to stress that the value of Hong Kong to China has been and will be its economic value. Hong Kong has always been an economic city, never a political city. If you ask anyone in the street what he or she is most concerned with, I bet over 90 per cent. will say it's their livelihood. It is precisely on the basis of Hong Kong's economic value that China formulates its present policy towards Hong Kong. Of course there are always a handful who are so naive to think that they can turn Hong Kong into a political city in order to influence the mainland in the sense of politics. If that were the case, Hong Kong would be of negative value instead of positive value to China. This is disastrous for Hong Kong". We should take that speech very seriously. It is by taking account of these facts of life in the unique and by no means comfortable situation of Hong Kong that over the years it has survived and prospered.

Chris Patten made exactly the same point about the limitations that apply to Hong Kong's freedom for political manoeuvre in his first speech to the Legislative Council in October 1992. After explaining his own personal adherence to democratic principles, he said: "I bring those opinions to the task of governing Hong Kong, where the ink of international agreements and the implacable realities of history, geography and economics shape and determine the way in which… views can be applied. That is a fact well understood by men and women in this Territory, better understood by them perhaps than by many … who would like the people of Hong Kong to be the heroic pawns of their own doubtless well meaning preconceptions". That was brilliantly said by Chris Patten, like so many things he says. My fear is that Hong Kong people are in danger of becoming "heroic pawns" in Sino-British quarrels. In particular, on this electoral issue, it has cost quite enough already. Now the two governments should concentrate on solving as many as possible of the practical business issues that will remove other uncertainties about the transition. That should have been our priority from the outset. It is not too late to revert to it to the great benefit of this wonderful city and its people.

4.31 p.m.

Lord Willoughby de Broke

My Lords, it appears that whenever we have a debate on Hong Kong the tenor is that Hong Kong is a success story, but there is always a "but". This seems to be the case again today. As we have heard, and no doubt as we shall hear again, the success story is evident and astonishing. There is an annual and forecast growth of between 5 per cent. and 6 per cent.; the gross domestic product is higher per head than in this country; it has Asia's largest stock market; and it has the world's largest container port. Hong Kong remains the place of choice from which to do business in the Far East.

That somewhat erratic barometer of confidence, the Hang Seng Index, more than doubled during the year following Mr. Patten's electoral proposals. If nothing else, that must say something about whether these proposals were quite so damaging as some of his critics have claimed.

I am grateful to my noble friend Lord Glenarthur for initiating this debate today because, as he said, this is an opportunity to remind ourselves of the many points which still remain outstanding and which have to be decided before the handover in 1997. China's internal problems, whether of inflation, mass unemployment or corruption, are of the utmost concern to Hong Kong, given the importance of trade with China to Hong Kong's economy. The question of where power lies now and where power will lie in three years' time is also extremely important, as is whether the focus will be on stability, or on reform, or on a form of government coalition rather than a change of dynasty.

Given the tensions which are apparent now, or may become apparent soon, it is all the more disappointing that the disagreement with China over the Governor's electoral reform proposals has been seized on by the Government of the People's Republic of China as an excuse to go into slow gear over other and unrelated matters—matters which will affect the everyday lives of Hong Kong citizens and which are as much in China's interests to resolve as in Hong Kong's.

From high profile projects such as the new airport and its associated rail link and the enlargement of Hong Kong's container terminal, to the more mundane details that need to be thrashed out by the Joint liaison Group, these are all either at stop or at very slow ahead. There are other matters that come in that group which still need resolution, as many noble Lords have said, notably the noble Lord, Lord Wilson of Tillyorn, who mentioned, for example, the conditions of service and pensions in the Civil Service. Other matters include the contracts which straddle 1997, the local legislative framework, passport and immigration issues such as the provision of visa-free travel for special autonomous region passport holders and, vitally of course, the issue of the court of final appeal in Hong Kong. Progress in these matters is essential if the 1997 deadline is to be met. I hope that my noble friend the Minister will be able to let us know whether progress is being made in accelerating the work of the Joint Liaison Group.

Under the terms of the Joint Declaration, China has a responsibility to co-operate with Her Majesty's Government to ensure a smooth and effective transfer of power. The current delaying and blocking tactics are not only damaging to Hong Kong's best interests but are effectively in breach of the Joint Declaration. As my noble friend Lord Glenarthur went on to say, there is also an understandable anxiety in Hong Kong over the question of human rights and their effective implementation after 1997.

The Joint Declaration states that UN covenants and civil and political rights will apply in Hong Kong. It appears that by signing the Joint Declaration, China is committed to full enforcement of these international covenants. Given their abysmal record on human rights in Tibet in particular, this commitment might seem to offer some comfort.

But the position at the moment is that China is not a signatory to the International Covenant on Civil and Human Rights. If China has not ratified these covenants before 1997, how will it meet the commitments to which it put its name in 1984? Can my noble friend the Minister please clarify what the Government believe China's obligations are and say whether they are satisfied that they will in fact meet Hong Kong's anxieties on human rights?

These are but a few of the matters which affect Hong Kong and which need decision before 1997 so that on 1st July we will transfer a Hong Kong which is in good economic shape—and all indications are that this will certainly be the case —but also a Hong Kong which will stand up with confidence in its new role as the special autonomous region, with its separate system so painstakingly negotiated in the Joint Declaration—a Hong Kong which is confident in its institutions, administration, legal system, police force and civil service.

It is in that context that I would like to touch briefly on the political problem. I have no intention of rehashing the old arguments with which we are now so familiar, except to mention that it seems doubtful that the Chinese Government entered negotiations on electoral reform with any intention to negotiate anything other than a complete withdrawal of these proposals or delay. That is certainly the case when we look at the papers and with hindsight. The fact is that we are where we are: the Governor's electoral proposals are being considered by LegCo, while the Government of the People's Republic of China have announced their intention to dismantle the LegCo elected under these proposals and to start all over again.

Here I have to differ with my noble friend Lord Geddes. I believe that the best safeguard against such dismantling would be a fully elected LegCo. The more broadly based and representative LegCo is, surely the more difficult it would be for China to tear it down. Indeed, the present LegCo, with its unhappy cocktail of appointed members, special interest members and only a small number of directly elected members, is part of the problem, not part of the solution. I very much hope that it will not eviscerate the present proposals which are before it. After all, these proposals have a great deal of support in Hong Kong. But accepting that we must stick to the agreement which we have with China on electoral procedure, it is reassuring to know that the Governor's proposals have Her Majesty's Government's full support.

I find it odd to hear still the patronising argument that Hong Kong's business is business, as if Tiananmen Square never happened—a regrettable but unfortunate lapse. Certainly Hong Kong's phenomenal success has been built on the energy and acumen of its business community. But what is sometimes forgotten is how much that success owes to the stability of Hong Kong under Britain, to the rule of law, to an independent judiciary, an uncorrupt police force and a dedicated and impartial Civil Service. They have all contributed hugely to Hong Kong's achievement.

Her Majesty's Government's position on the question of what sort of representative rule they will leave behind them is a no-win situation. Whatever they decide, they are bound to be criticised by one side or the other. But I believe that their current position has been consistent both with the Joint Declaration and with their commitment to Hong Kong.

Hong Kong people, all of them, have created one of the most dynamic and successful societies in the world. Is it not almost grotesque that they should be thought unfit to decide who should represent them, who should enact their laws? In 1991 President Kennedy in his inaugural address said: Ask not what your country can do for you; ask what you can do for your country". A similar question might well be put to those in Hong Kong and elsewhere who by their activities make Hong Kong's future success and security that much more difficult to achieve.

The noble Lord, Lord Wilson of Tillyorn, quoted a Chinese dictum: 'Those who know don't speak; Those who speak don't know". I feel that the next speaker, the noble Baroness, Lady Dunn, will confound that, and I very much look forward to hearing what she has to say.

4.40 p.m.

Baroness Dunn

My Lords, since the debate in the House on 9th December 1991 about HMG's package of electoral proposals for Hong Kong, the second and final part of the electoral Bill has been introduced into the Hong Kong Legislative Council. Members are studying the provisions in detail, responsibly and sensitively. They will judge the wishes of Hong Kong people. They will judge where their best interests lie. I have no doubt that when the package passes finally through the Legislative Council it will represent a broad community consensus. I hope that both the British and Chinese Governments will accept that outcome.

It has been profoundly sad and disappointing to all of us in Hong Kong that it has not been possible for Britain and China to reach agreement on that issue. It is a great tribute to the restraint and perseverance of the Hong Kong people that over the past two years they have not allowed the noisy and debilitating row between the present and future sovereigns to distract them from building a future for themselves as part of China.

Hong Kong's economy grew by 5.5 per cent. in 1993. It is forecast to grow by the same amount again this year. We now represent about one-quarter of China's economy. We account for two-thirds of her foreign exchange. We have a large stake in China's spectacular transformation. China has a large stake in Hong Kong's continuing economic success.

Opinions will vary on where the fault lies in the highly public dispute between Britain and China. I hope that this debate will not seek to apportion blame. History will no doubt judge the two governments with the benefit of hindsight. But criticisms of the past do not further Hong Kong's interests in the future, which I know is the aim of my noble friend Lord Glenarthur in moving this timely Motion. One country, two systems is a unique concept. The transfer of sovereignty is a unique enterprise. As the noble Baroness, Lady Chalker, said, no one ever expected that the long transition would be trouble free. It has not proved to be, but disagreement over some things is no reason why Britain and China should co-operate on nothing. Hong Kong people wish fervently to see a return to a co-operative relationship between Britain and China and a determined effort made by the two governments to complete the tasks that still need to be accomplished to prepare Hong Kong for the transfer of sovereignty.

Your Lordships will be aware—it was referred to by previous speakers—that China has set up a preliminary working committee. It is to advise her on the preparatory tasks necessary for the resumption of sovereignty. China has also appointed members of the Hong Kong community as Hong Kong affairs advisers. The noble Lord, Lord Wilson of Tillyorn, is entirely right that we should and must have contacts with those people. He will be reassured to know that some of those advisers to China serve on many advisory boards and committees set up by the Hong Kong Government. A few are members of the Hong Kong Legislative Council. One of them is a member of the Hong Kong Executive Council. The Hong Kong Government have made it very clear that they would be pleased to provide those advisers with the information that they require in the same way as they provide information for other groups. But these bodies cannot fulfil the responsibilities which can only be discharged by the two sovereign Governments.

For example, the Joint Declaration speaks of freedom of travel and explains broadly how that will be protected. But Hong Kong people need to know now precisely who will enjoy a right of abode in Hong Kong after 1997. And they need reassurance that the visa-free access to other countries that they currently enjoy in travelling around the world will endure beyond 1997.

The Joint Declaration allows Hong Kong's existing laws to continue after the transfer of sovereignty. But some 200 of our laws were made by Order in Council. These still need to be re-enacted locally in a form that will endure under Chinese sovereignty. We need also to adapt our own 600 or so ordinances in ways that are compatible with the Chinese Basic Law. If we cannot complete that work before 30th June 1997, we will be left with damaging gaps in the law.

Likewise, HMG have extended to us hundreds of multilateral international agreements, in areas as diverse as merchant shipping, civil aviation, customs co-operation and private international law. We need to ensure that these will remain in force beyond 1997 and that Hong Kong will remain firmly locked into the network of international, commercial and financial arrangements governing world trade. We must also complete a long programme of bilateral treaty negotiations in a wide range of fields, from air services and extradition to the promotion and the protection of investments.

Above all, Hong Kong's fine body of civil servants needs to be reassured about its future. As the noble Lords, Lord Wilson of Tillyorn and Lord MacLehose, have said, the professionalism and efficiency of our civil servants are a key factor in Hong Kong's success. They are one of the most vital elements of continuity to see us through and beyond 1997.

All these are important matters which can be: resolved only by the two sovereign Governments. And all this was foreseen by the architects of the Joint Declaration who agreed that the need for closer co-operation in the Sino-British Joint Liaison Group would be intensified during the run-up to 1997. I appeal to the two Governments to free up the log-jam that the political dispute has created in other areas by resuming and intensifying their co-operation.

Britain has done an immense amount to help Hong Kong prepare for life after 1997 when the constitutional ties to the United Kingdom will finally be cut. I can assure the noble Lord, Lord MacLehose, that I and many in Hong Kong pay tribute to the way in which the British Government have fostered in Hong Kong respect for the rule of law, clearly defining the relationship between the governing and the governed, without which Hong Kong could not have developed into the modern, dynamic, civilised society which I am proud to call my home. Hong Kong people expect the British Government to remain fully responsible and effective for the administration of Hong Kong until 30th June 1997. Mr. Patten is vigorously and honourably fulfilling that obligation.

But Hong Kong people also understand that they need to develop a mutually comfortable relationship with their future sovereign. They accept that that task lies largely in their own hands. And that task must begin now. Hong Kong businessmen have already demon-strated how a mutually beneficial relationship can be developed with China. I have every confidence that throughout Hong Kong all people have the desire and the capacity to develop a healthy and trusting relationship with their future sovereign.

The point that I want to make is this: just as daylight does not follow night without a dawn and sunrise, so the smooth transfer of sovereignty requires a period of adjustment. The overriding objective in these final years of British rule must be a seamless transition in 1997.

To achieve it requires two things. First, it requires putting in place the structures and arrangements of which I spoke earlier. This can only be done by the two sovereign Governments through close co-operation. Secondly, it requires a mutually comfortable working relationship between Hong Kong people and their future sovereign; and this can only be brought about by Hong Kong people themselves.

Despite all the setbacks, I remain fundamentally optimistic about Hong Kong's future. I am optimistic because the people of Hong Kong have shown in the past decades not only great courage, not only great resilience, not only great flexibility, but they have shown an ability to excel in a way which recognises their broader social responsibilities.

Several noble Lords have already alluded to the fact that Hong Kong's GDP per capita is now more than 18,000 US dollars a year—higher even than that of the United Kingdom. When the Hong Kong special administrative region comes into being in 1997, it could have as much as 50 billion US dollars from the fiscal reserves, the money set aside in a special fund from land sales and the Exchange Fund.

But we are a community which believes in building more than just a good bank balance for future generations. We have increased by seven times the number of students in tertiary education in the past 20 years. All our social and health indicators are better than in most OECD countries.

In the 10 years since the Joint Declaration set out for us the framework for our future as part of China, we have set about building the economic and social foundations of that future with a sense of pride, with responsibility and with great vigour. My Lords, you cannot be anything but optimistic about the future of a community that has achieved so much.

4.54 p.m.

Lord Eden of Winton

My Lords, I am sure that the whole House greatly welcomes the participation in today's debate of the noble Baroness, Lady Dunn. She speaks with eloquence and authority on behalf of all the people of Hong Kong and brings to our debate a depth of knowledge and experience which few others can match—certainly to which I cannot possibly aspire.

I have been following the events in Hong Kong over recent years closely. I have many family links with that great city and enormous admiration for its people. I have visited it many times. I know that we are all extremely grateful to the noble Lord, Lord Glenarthur, for providing us with the opportunity of this debate.

I have also been to China, first with the late Sir John Keswick, whom many of your Lordships knew. Your Lordships will recognise that he was a great friend of China who understood and had great affection for its people. On our tour we witnessed the first flowerings of Deng Xiaoping's reforms among the farmers of Sechzuan. Twelve years after that visit, I had the opportunity on my last visit to China, to have a look at the progress of the building of the new China bicycle factory, a vast and well managed enterprise, with products of the highest quality and very latest design which are shipped to worldwide markets. The difference between those two extremes in that period is a monument to Deng's achievement. What has happened in China is amazing.

Deng Xiaoping has shown himself to be both a visionary and a realist who has released the enormous energies and skills of his people to make them the engine of economic growth. Inevitably, the process of building up new more market-oriented enterprises and of encouraging the creation of a multiplicity of small businesses is not without its problems, strains and stresses. It is hardly surprising that difficulties are being encountered, some of which are quite serious and to some of which the noble Lord, Lord MacLehose, alluded briefly. However, the overall transformation in China has been spectacular.

Deng has shown China the way to economic development and has brought that great country with its many millions of citizens into the mainstream of international life. He aims, so it is said, to create in China a socialist market economy. In doing so, he is determined that Hong Kong (even though it is seen to be part of China) shall retain its free market capitalism. That was further underlined by Lu Ping in the speech from which my noble friend Lord Geddes gave us a number of quotations. During his recent visit to Hong Kong, Lu Ping said that the capitalist system could last longer than the 50 years guaranteed in the Sino-British Joint Declaration. China sees Hong Kong as a bridge across which international investment and expertise will flow to support China's continuing economic growth. Therefore, there is no wish to impose socialism on Hong Kong. Hong Kong's capitalism is recognised and accepted. The concept of "one country-two systems" stems from the pragmatic acceptance of harsh reality. Hong Kong has a vital role to play in the economic development of China. In Deng's view, the people of Hong Kong are fully capable of running their own affairs and so long as they do not seek to undermine Peking's ways of doing things—which in itself would be an act of the greatest folly—the people of Hong Kong should be encouraged to continue and to add further chapters to their economic success story.

That is good so far as it goes. But in my view, it misses out a crucial ingredient in the make-up of Hong Kong's remarkable performance. Hong Kong is not solely a capitalist system. It is not only about money making. As the noble Baroness has just reminded us and underlined, it is also a free society. It is in no small way because of that very freedom that capitalism has flourished. For capitalism to continue to the benefit of China, the institutions of a free society need to be in place. They do not have to be precisely on the Westminster model and, in that regard, I distance myself from the strictures of my noble friend Lord Geddes. They need to be devised by the people of Hong Kong for Hong Kong, taking into account the environment in which they will exist in the future after 1997.

But that the institutions need to be there is fully recognised, and that is clearly understood by the Governor. I have found—as I am sure have other noble Lords—greatly offensive the sustained personal abuse to which the Governor has been subjected. I know that it does him no harm but it seems to me to be very short sighted. It certainly demeans the standing and stature of a great state like China.

As Governor Patten said, there is a clear need for those institutions. That was well expressed in his October 1992 speech which was quoted by my noble friend Lady Thatcher in the debate on 9th December 1992. It bears repetition and I shall quote a small part of it. The Governor said: Without the rule of law, buttressed by democratic institutions, investors are left unprotected. Without an independent Judiciary enforcing laws democratically enacted, businesses will be vulnerable to arbitrary political decisions taken on a whim—a sure recipe for a collapse in confidence and a powerful deterrent to investors from overseas". I feel sure that businessmen everywhere must understand the truth of those statements.

Nothing of what is being proposed in the way of development of institutions in Hong Kong constitutes any threat to China; rather the reverse. The proper representation of the people provides a safety valve for the redress of grievances and a safeguard against the curse of corruption. Corruption is already widespread in China and the Administration are doing their level best to tackle it. It must not spread into and infect Hong Kong. That is why those institutions are so critically important. That is what businessmen everywhere should openly and strongly support. It is to provide the best possible environment within which Hong Kong's free market capitalist system is able to continue long after 1997 that so much patient and agonising effort is being made by the Governor and the British Government.

The Ministers involved and the Governor are people of integrity and goodwill. They have a direct responsibility for Hong Kong. For the discharge of that responsibility they are, until 1997, accountable to this Parliament. They share a sincere and deep desire that Hong Kong, when it is handed back, will prove to be of real and lasting benefit to China and its leaders. Is it too much to hope that, having registered their strongly held objections to the Governor's proposals in some respect, the Chinese negotiators will now return to the table and help to ensure that Deng's great vision of "one country-two systems" becomes a reality?

5.06 p.m.

The Earl of Cromer

My Lords, with the very notable exception of the noble Baroness, Lady Dunn, I am perhaps the only member of your Lordships' House to have spent the majority of my life living in East Asia, the past 20 years in Hong Kong.

Most countries in post-colonial Asia have chosen political systems which have suited their own requirements and with very few exceptions, no country has elected to adopt a true Westminster-style democratic system. Most of these peoples do not have long traditions of democracy or in some cases what we would consider to be respect for the individual's rights. In general their loyalty is to the community and to the family.

An individual is expected to subordinate his own views to the general well-being of the many. Most citizens of East Asia consider the price that they pay in the form of political constraints to be amply justified by the stability that their system gives them and the tangible economic benefits which they receive from their own labours.

Of the Asian tigers, Hong Kong is of course the finest example. For most of the past 150 years, Hong Kong has been free to grow under a benevolent hands-off colonial administration. There we have created a monument to capitalism in Asia, a monument of which my forefather Captain Charles Elliot, the founder of Hong Kong, would indeed be proud; a successful city state unparalleled in modern history.

It is my view, and a view I would add that is shared by much of the community in Hong Kong, that Her Majesty's Government have embarked on a policy in Hong Kong that is seriously flawed. It is a policy that is aiming to bring to Hong Kong a political system which, if other East Asian countries are anything to go by, may not ultimately be compatible with Hong Kong's aspirations. In its proposed form, it is moreover a system which has been manifestly rejected by the nation which will resume sovereignty for Hong Kong on 1st July 1997.

It is also a policy which flies in the face of an immensely painstaking and ultimately highly successful series of negotiations whose planning commenced in 1979 and which led to the signing of the Joint Declaration in 1984, an agreement praised at the time by the United Nations Secretary-General as: one of the most outstanding examples of quiet diplomacy in contemporary diplomatic relations". This policy was virtually guaranteed to produce a violent reaction from the Chinese. It was only after a series of very hard negotiations in 1990 that the Government were able to persuade the Chinese to accept a progressively improved constitutional framework leading to half the legislature being directly elected by 2003.

There has been criticism that these negotiations did not achieve enough, and this is clearly the view of the Government today. The view, however, of the: Foreign Office at the time was that they were down to the wire and no further concessions could have been extracted from the Chinese. The depth of resistance met by the latest package of reforms does tend to bear out that the Chinese had already gone as far as they could have countenanced.

Why, one should ask, have we put at risk a relationship with the world's most populous nation in order to offer something to the people of Hong Kong that is not within our power to deliver?

Within just three months of his arrival in Hong Kong, the new Governor had introduced his democratic reform package claiming that there was a "clear wish" for further movement towards democracy. No one has yet been able to provide any evidence that there was any such clear wish among the great majority of the people of Hong Kong. As the noble and learned Lord, Lord: Shawcross, told the House: Only 22 per cent. of the electorate took the trouble to vote in the 1991 election—a rather feeble demonstration for democracy which is said suddenly to exist".—[Official Report, 9/12/92: col. 229.] Certainly there has been some political awakening in the territory over the past few years and a small number of people have turned up the political volume, but there is no evidence that the mass of Hong Kong people are behind that movement. Indeed, with considerable foresight, the late Lord Sharp told this House on 9th December 1992 (at col. 215 of Hansard) that, the Governor is not on as firm a ground as he may think in considering that his proposals are reflecting public opinion. What Hong Kong people want is prosperity, not democracy, unless they can have both. But there is no choice here. The Hong Kong Chinese chairman of Hong Kong's influential Business and Professional Federation said: To run the risk of developing a political structure which will be dismantled in 1997 is just not acceptable to us. We should now be proceeding full-steam on a smooth transition —and this requires close cooperation between the two governments instead of a major confrontation as we have on our hands". Concern must be expressed at the methods adopted by the British Government in their dealings with the Chinese Government. I have spent much of the past 20 years negotiating business transactions with organisa-tions in China. The Chinese have perfected the art of negotiation and are prepared patiently to enter into discussions which can stretch for months or years but ultimately they will only use confrontation when they no longer believe in the good faith of the other party.

The British side has now chosen a path that has led to confrontation. The Government have been at pains to play down that aspect, but the fact remains that government policy has led to polarisation with the Chinese stance frozen at a time when they hold the dominant position. In negotiations with the Chinese, defiance is always the tempting, easy route. But it only leads to intractable positions and a raising of the temperature all around. To quote the words of Sir Percy Cradock, one of the architects of the Joint Declaration:

To be defiant at the expense of a third party, particularly one to whom we stood in a position of trust, as with Hong Kong, was … an inexcusable self-indulgence". The Chinese Government's view, rightly or wrongly, is that Britain is tinkering with China's sovereign rights in Hong Kong as well as contravening the Joint Declaration, the Basic Law and the 1990 exchange of letters between the Foreign Ministers. When faced with provocation of that kind China will consider that it has every right to roll back the promises of autonomy to which it had earlier agreed. Although the British Government have consistently taken the line that they have not contravened the Joint Declaration in either word or spirit, it is to be noted that this is not the view of the Hong Kong LegCo. On 4th May, LegCo passed a unanimous motion calling on both China and Britain to stop violating the Joint Declaration.

At this time it is the Government's intention to press ahead with democratic reforms in Hong Kong in the face of China's demands that Britain returns to the agreements already reached. That dangerous strategy is ensuring that after China resumes sovereignty over Hong Kong it will be approaching the territory with grave suspicions that Hong Kong could become a hotbed of subversion bent on the spread of westernised democratic ideas throughout southern China and thus posing a risk to the stability of the entire nation.

The concessions won by Britain which assure Hong Kong's future under the one country-two systems policy will then be jeopardised. Britain's unilateral actions on political reform will provide China with the perfect excuse to install a completely different system from what was agreed in the 1984 Joint Declaration.

With China's economy on track to becoming one of the largest in the world over the next decade or two, it must be in Britain's interests to recover our position of trust with the Chinese Government. Now is the time for us to move as close as we can to the Chinese Government so that we can help guide them to overcome their occasionally fractious, outwardly suspicious nature, as they become more influential in the international brotherhood of nations. The rapid expansion of China's trade with the outside world has whetted the appetite of the international business community. I was taken aback to be told by Her Majesty's Ambassador in Peking only a few months ago that it would be irrelevant if the present policy should lead to British firms losing opportunities in China. When I queried him on this, he stated categorically that British commercial interests in China were not material in the context of the current British policy in Hong Kong.

We are now faced with the dismal reality that China has set up a provisional working committee of Hong Kong and Chinese dignitaries charged with the responsibility of preparing Hong Kong for 1997. That is, arguably, in contravention of the Joint Declaration and appears to act with little consultation with the Hong Kong Government. It is regrettable that the Chinese Government have had to resort to such measures as it further reduces any possibility of co-operation between the Government and Peking.

On a recent visit to Hong Kong, the Director of the Hong Kong and Macau Affairs Office, Peking's most senior official concerned with Hong Kong matters, did not even bother to try to see the Governor. An editorial in Hong Kong's respected South China Morning Post recently summed up the general Hong Kong attitude to its Governor under the headline "Hong Kong's Interests Neglected", by stating that: while Chris Patten plays political games to keep himself in the public eye and upstage [the director of the Hong Kong and Macau Affairs Office], the majority wish he would buckle down to practical governing instead". China's flood of insults and invective previously aimed at the Governor have now given way to a certain ennui; the imperialists are behaving just as they did in the history books. We have become a side-show, seen by Peking as untrustworthy and as a subject of bemusement among the Hong Kong Chinese, most of whom are aligning themselves with the Peking Government. They are bemused because they cannot understand why Britain is so strenuously arguing for something that the Chinese have no intention of conceding.

I wonder to which gallery the Government and the Hong Kong Governor are playing? Is it the international community, which includes those in this country, which can be easily brought to applaud the actions of a government intent on standing up to a vast communist ogre replete with its security organs and its labour camps? Or is it genuinely concerned with the future welfare of the people of Hong Kong? If the latter, then there is a very real risk that a system will be installed that is wanted neither by the people of Hong Kong nor by Peking. The 1995 elections will thus be held under unprecedented pressure from Peking and the structure could then be undone by a stroke of the pen in 1997. That will then leave Hong Kong in a dramatically worse state than would have been the case if we had adhered to the agreement achieved by the Foreign Office negotiating team in 1990. That will, in the words of Sir Percy Cradock, be a tragedy, the greater for being avoidable". One of our previous ambassadors to Peking has conjured up the image of the Governor becoming a kind of irrelevance, a small show being played energetically on the beach while the waves come in behind him. After 150 years of British administration, we have a right to be proud of what Britain and the Hong Kong Chinese created out of a barren rock. Our last significant colonial possession has turned out to be our most successful. What a dismal shame it will be if we somehow manage to get it wrong just as the curtain falls.

Captain Charles Elliot, I am sure, would not be pleased.

5.19 p.m.

Lord Craig of Radley

My Lords, I should also like to add my thanks to the noble Lord, Lord Glenarthur, for today's most timely debate. I make no claim to be an expert on Hong Kong, least of all this afternoon with so many speakers on these Benches—and, indeed, throughout your Lordships' House—whose knowledge and wisdom about the colony is quite unrivalled. Their understanding of the human dimension, of the thrust and individuality of the people of Hong Kong and the appreciation of the desires and ambitions of the Chinese Government both today, and in the coming years as the next generation come to power in Beijing, are based on years of hands-on experience, study and analysis. I shall follow the debate with the greatest of interest and I am only sorry that a long-standing engagement may prevent me from hearing the final contributions today.

I have followed with interest, and some personal misgivings, the thrust of political development in Hong Kong over recent months driven by the initiatives of the present Governor and of course by Her Majesty's Government. These may be right; they are certainly laudable; but are they timely? Are they in the best interests of a peaceful transition? For those with commercial interests in Hong Kong—now and after 1997 —it must be difficult to decide how strongly and openly to support the Governor's intentions. What might this do to their longer term business prospects inside China after 1997?

But for me there are two further questions which strike me even more sharply. The first is: will the run-up to transition in June 1997 be completed without any shedding of blood, any uprising, any unrest, or even worries about internal security? My second question is: will the agreement to allow Hong Kong special status for the next 50 years enable its inhabitants to enjoy ever higher standards of living ahead of other parts of China throughout those next five decades? For me these two questions are very much interlinked. Much will depend on attitudes in Peking, and by how much (in support of their own political objectives and beliefs) the Chinese Government will be tempted to undermine or weaken economic prosperity and stability in Hong Kong.

Until two or three years ago there seemed to be a very favourable and shared view about Hong Kong's future. Investors (and not least the Chinese themselves) kept pouring money into developments in Hong Kong long after there could be any prospect of achieving a full return on their capital, or borrowings, before mid-1997. They and their bankers clearly took a positive view about the longer term, but why? One reason must have been that all concerned felt confident that the regime in Peking, however challenged, would not wish to cut off the entrepreneurial nose of Hong Kong to spite, or save, their political face, or their antagonism to the growth of democracy in Hong Kong.

Whether we like it or not, mainland China is not yet ready to embrace democracy. Tiananmen Square and the less publicised other events bear witness to this fact. What strikes me is that the economic growth elsewhere in China—10 per cent., even 15 per cent., per year are not untypical regional figures—could lead to a very different feeling in Peking about Hong Kong's long-term importance to China's economic well-being. Not yet, but in a few years, and well within the 50 years of the special status, Hong Kong might find itself outstripped and outclassed by other Chinese regions around Shanghai, Guangzhou or elsewhere.

With its remarkable growth in its overall economic performance and with its commitment to embrace new technology—for example today it was announced that IBM is contracted to interconnect 500 Chinese cities with fibre optic cables—the regime in Peking could fund itself well equipped to engineer such unfavourable outcomes for Hong Kong if it were ever minded to do so. Many will dismiss this line of thought as too fanciful and too wide of the mark. We have the Joint Declaration; we have the Basic Law; we have the undeniable strength and vitality of the Hong Kong people. We have the confidence expressed by the noble Baroness, Lady Chalker, that the PRC will keep political and economic issues apart. But what if, in the next couple of years, feelings of doubt about Hong Kong's future were to develop—perhaps pressed overtly, or covertly, by Peking? Would we be confident of maintaining internal peace and security in Hong Kong in the run-up to June 1997 in the face of such pressures?

For many years—and even less so today—we have been in no position militarily to deal with a major internal security problem. The catch-phrase "stronger for longer" does little or nothing to hide the real position. If the police and the resident force fail to contain unrest, the temptation for mainland China to move to "stabilise" the position could prove to be irresistible. It would be a humiliating end to 150 years of history of great pride and achievement. I recall our withdrawals from Aden and Singapore and the contingency planning and the many precautionary deployments we took then. I was closely involved with some of that planning. We could not today match any of that for Hong Kong. What then should we do? Should we keep our fingers crossed and be confident that wise counsels will prevail in Peking no matter what? I sense: that that is the current official view and we have little else to fall back on. But events beyond our control—for example, a change in most favoured nation status between China and the USA—could be an important influence.

For my money, I would hope that not only is there contingency planning for the speediest control of any instability before it can get out of hand, but also that we are seriously considering honourable ways of handing over our colonial interests, if necessary earlier than June 1997. Is there not something still to be said for negotiating, even at this late stage, an earlier agreed transfer of sovereignty in exchange for the fairest and firmest of undertakings and practical moves by Peking to renew the strength of Hong Kong's confidence about its prospects over the next 50 years?

It will not have escaped anyone's notice that a British general election must take place before June 1997. We need a non-military fall-back position—we no longer have any viable military ones—with which to ensure a bright and lasting future for the people of Hong Kong, even in the face of Peking's displeasure with the United Kingdom. The recent return to negotiation over the airport is a hopeful sign. Let us all hope and pray that all will proceed smoothly for Hong Kong both up to June 1997 and beyond.

5.19 p.m.

Lord Vestey

My Lords, I am very grateful to my noble friend Lord Glenarthur for initiating this debate. I am also grateful for the opportunity to speak here today. I shall not detain your Lordships long. I am no expert on Hong Kong but I am better informed thanks to a most generous invitation from the noble Baroness, Lady Dunn, and her husband to dine with them last Saturday at one of her legendary dinner parties in Hong Kong. I listened with great interest to her guests, many of whom were born in and have lived in Hong Kong all their lives and all of whom have achieved distinguished careers in Hong Kong. I congratulate the noble Baroness on her excellent speech, spoken with great knowledge and much charm. I am sure your Lordships will agree that we are very lucky to have her here in the House today.

I returned from Hong Kong yesterday morning. I should like to share with your Lordships the experience of the Order of St. John in Hong Kong. For the past three years I have had the honour and privilege to be the Lord Prior of the Venerable Order of St. John. Our order is responsible, among other things, for the running of the St. John Ambulance whose association and brigade have been active in Britain since 1877. The Order of St. John is also active in about 40 Commonwealth countries and has been active in Hong Kong for 110 years.

This was my third visit to the order in Hong Kong. As usual I was most impressed by the enthusiasm and dedication of all the people I met. Your Lordships will be interested to hear about the positive way in which St. John Hong Kong is preparing for the future.

The strength of the brigade is more than 3,000 adults and cadets. Between them last year they fulfilled over 100,000 man hours of public duty. Those duties included first aid and ambulance duties, manning beaches and swimming pools, and carrying out community service. The brigade is particularly proud of its mobile dental clinic for the elderly. The brigade also teaches first aid. Last year more than 700 courses were organised for commercial employees and members of the public, and 7,000 successful candidates received our first aid certificate.

St. John Hong Kong has already established links with the Chinese Government. In 1991 a 15-strong delegation from St. John Hong Kong visited Beijing to meet representatives of the Chinese Medical Association and the Ministry of Public Health. The delegation explained their wish to maintain services to the community after 1997 and described the work of the Order of St. John in Hong Kong. The Chinese authorities assured the delegation that there appeared to be no reason why they could not support the work of St. John, and they hoped that the order would maintain and expand its work well beyond 1997.

The Chinese authorities commended the St. John members for their great efforts and the amount of voluntary work they did for the community. They even remarked that the knowledge of first aid and the St. John motto, "For the Service of Mankind", should be further promoted in China as well as in Hong Kong.

We are lucky to have influential members of the St. John council in Hong Kong who have maintained contact with various people in China; many have business interests in China. They believe there is a great future for St. John in Hong Kong.

The reason for my visit to Hong Kong this time was to attend the laying of the foundation stone by the Governor, Mr. Patten, of the new St. John Hong Kong headquarters. The building, on the site of the old, out-dated offices, will consist of 32 floors of which the organisation will use nine. The finance for the project has been provided by generous benefactors, including the Royal Hong Kong Jockey Club, which has given 54.8 million Hong Kong dollars—at today's rate of exchange, about £4.75 million. There has also been generous financing by the New World Development Company, a world-wide property, development and operations company which has deep commitments both in Hong Kong and China, as have so many of St. John's benefactors in Hong Kong.

I returned from my short visit greatly encouraged by the confidence and vision which St. John is displaying. It has the will to prosper. I am grateful for all that the Governor and his colleagues are doing to encourage St. John and organisations like it to prepare positively for 1997. As some of your Lordships have said, now is the time to look forward and not backwards. I hope that the many difficulties can be settled for the good of the people of Hong Kong. It will not be for lack of trying. The Order of St. John will be there for the service of mankind.

5.34 p.m.

Lord Marsh

My Lords, all of us are grateful to the noble Lord for initiating this debate. Whatever other differences we may have, nobody underestimates the importance of the issue in every way, and the timeliness with which the debate takes place.

I agree that normally there is no point in having long postmortems about what has happened. However, I believe that this case is an exception because there was a fundamental change in policy with the appointment of the new Governor. That was not the sole responsibility of the new Governor; but the policy changed at that time. I do not believe that anyone could disagree with that. That policy has now been in operation for a period during which it has evolved to involve a high degree of confrontation and new and profound doubts as to what the situation will be post-1997.

The noble Baroness the Minister very properly gave us a list of continuing projects with contact with the Chinese. Of course the Chinese will not become involved in childish reprisals. They want to see a healthy economy in Hong Kong as much as anybody else. That is not my problem. My concern is that I believe that we may well have moved to a point which places not us, because we shall all be here at Westminster talking about something else, but the people of Hong Kong, and possibly some elements within mainland China, in a position of direct confrontation with the authorities. This may be defeatist; but if that happens, I have no doubt as to who will lose that particular battle. We all agree that, whatever the reasons, the situation in which we find ourselves at this crucial stage of the negotiations is at least worrying and potentially highly dangerous.

Reference has been made to the visit of Mr. Lu Ping, the Chinese official in charge of Hong Kong affairs. Elements of his speech have been quoted. That is quite appropriate and they are important. I should like to say a word or two about that visit.

Mr. Lu Ping has just completed an eight-day visit to Hong Kong. He was accompanied by a team of no fewer than 20 officials. He took the chair at a number of meetings of the Preliminary Working Committee, a body which normally meets in Beijing and which is charged with advising the Chinese Government on all matters affecting the transfer of Hong Kong. It held its meetings for the first time in Hong Kong. He also had meetings with many key local people, including senior business people and a variety of different groups. This was a very important visit. In no way was it a ceremonial occasion. It was a serious visit by a powerful person at a crucial time in these negotiations.

Quite properly, as happens on these occasions—and not surprisingly—soundings were taken with a view to the possibility of a meeting with the Governor. That would have been a very important meeting. I have no doubt that it could have taken place. The result was a contemptuous refusal of any form of meeting with the man directly responsible to the British Government for negotiating the future of Hong Kong. That cannot be a matter other than of the gravest concern for anybody interested in those negotiations. I do not wish to argue about who is to blame or to go into the intricacies of the lengthy negotiations. I do not believe that it is a question of blame so much as of differences of perception between two totally different cultures with two totally different sets of values which caused the problem. But no one can consider the current situation and pretend that they are other than surprised, sad and deeply worried. No one believed that it would reach this stage. It was never planned to happen like this. I do not believe for one moment that it would ever have crossed Chris Patten's mind—a man of considerable ability and total sincerity—that he could find himself in this extraordin-ary, crucified position.

But that is not all. On the third day of Mr. Ping's visit, and from the other end of the political spectrum, Mr. Martin Lee—one of the strongest opponents of anything connected with the People's Republic of China, a man of strong views, a courageous man and a leading critic of the Chinese—tabled a vote of no confidence in the negotiations by both sides, including the British. So there could be no meeting with the Chinese representative. People who do not like China are not satisfied on how matters are progressing, either. I simply hammer the point that no one can sit and say, "Oh, well, not too bad. We'll wait and see what turns up". We find ourselves with a very difficult problem.

Worst of all, the very real progress—and it was real progress—which was made between 1979 and 1992 with difficult negotiations is now seriously threatened, at the minimum, and possibly irrelevant for all time.

It has frequently been said that we should be tougher. It has been said, "We'll show these people that we an; British". I have heard people suggest that we should not even accept that Hong Kong should be seceded to the Chinese. I do not know quite how one achieves that. I suppose that a platoon of 30 or so Gurkhas would do a gallant job. I do not know whether they would get far with 3 million members of the People's Liberation Army. The reality is that we have few cards in our hands. The skill of British diplomacy was demonstrated on the distance that the negotiators managed to go with those few cards. Those cards are, primarily, that the Chinese would dearly love to have British agreement. They want a Hong Kong that is stable; I have no doubts about that.

I should declare an interest at this stage; I had forgotten to do so. I chair a Hong Kong company which is a quoted company in Hong Kong and London. Its sole purpose is to invest in the People's Republic of China. I make visits in that connection every two to three months, and have done so for the past six years or so. We work with the Chinese on the Stock Exchanges in Communist China and they work; perhaps I would not recommend it for widows and orphans. The Chinese want that system to work, and they will pay a price for that. But it is childish to pretend that they do not have all the aces in their hands. Nothing can stop them from having what they want.

Therefore I believe that we have reached a position of a diplomatic disaster for which there are few parallels. We are in a blind alley and we do not know where it will end. We have also surrendered that which we had. We have three years to go. I cannot believe that it is too late to retrieve that situation. There is too much at stake.

The situation is serious not just for Hong Kong and the people of Hong Kong. It is serious for the stability of that entire region. The future of China is of crucial importance far outside its national boundaries. There is still the possibility of a good future after the changeover if we seize it.

I have no doubt that China today is market-orientated to an extent we would never have believed. There is a lot to be done. There are great problems. For example, there are no generally agreed accounting standards. That is important, and it is a measure of their seriousness that the Chinese are taking advice. They have consultants drawing such standards up. They have consultants working at present to draw up company legislation. The Chinese are much concerned and have backed a lot on that market orientation. They understand that the success of Hong Kong is totally dependent on an entrepreneurial capitalism previously seen as complete-ly incompatible with communism. They genuinely wish to preserve that concept in Hong Kong because those concerned know that that is the position in Hong Kong. A lot of the officials quite look forward to being officials in a China which offers even more career opportunities than at present.

But there is one factor that westerners refuse to recognise. From the very beginning, over and again, the Chinese have made the position abundantly clear, saying, "We are determined to produce a capitalist entrepreneurial Hong Kong. That is what we want. We want to see the same thing happening in other parts of China. But do not challenge the Party. We will not tolerate any challenge to the Party". I do not say that that is an attractive position; I say that it is the position. It is the position that has been stated clearly.

The events of Tiananmen Square have been referred to. That tragedy arose out of the fact that young people were just demonstrating—as some of us did long ago —and as kids do in Paris, London and Washington. The authorities told them to move, and they did not move. Other people probably gave those young people the idea —they certainly gave them funding—that it will be all right, the outside world will look after them and the Chinese will never dare move in the face of American attitudes. Those young people talked and laughed with soldiers of their own age group; and in the end those same young soldiers of their own generation drove the tanks across them and killed them. It is not a game. It is not a macho issue. The Chinese will not tolerate a challenge to the system as they see it.

It is said frequently, and Governor Patten has said (I think in almost facile fashion), "All I'm doing is putting a few panes of glass in the windows, and if the Chinese want to knock them out the day after they take power in 1997, they will have the international community to answer to and will back off. My Lords, the United States Secretary of State, Warren Christopher, went to deal with the MFN agreements in Beijing. They were of critical importance to the Chinese. He raised the question of human rights. What happened? The Chinese said, "Round the dissidents up. We'll show him. Stick them in gaol again". Yesterday the question of human rights was raised in discussions with the United States. What did the Chinese do? They said, "Take a leading dissident, and charge him"—and we do not know what will happen to him. The Chinese will do that the whole time. Those young people died because they did not believe that the situation could be that serious.

It is absurd to think that the Chinese will back off from the position they have adopted. The brutal reality is that the Chinese would like to achieve agreement with the British Government. But if they cannot achieve it in July 1997, they will impose their own solutions, which will be bad for business confidence. It will be bad for people in Hong Kong; and, above all, the ghastly aspect is that it will be totally unnecessary. We have a duty to ensure the smoothest transfer that we can get. Deliberately to pursue a policy which we know will be replaced with more draconian conditions than those now on offer may sound macho, may go down well in Westminster, but Hong Kong will face serious problems as a result for a long time.

I have no doubt that it will take real courage for the Government to change direction. It will involve hard decisions. If they believe that they can get a better deal, the best deal they can get, as Sir Percy Cradock said, if that is the reality, then they have a duty to follow that path. If they do not believe that that is the case, if they believe, "We will go on regardless", then God help the people of Hong Kong and many others too.

Lord Ennals

My Lords, before the noble Lord sits down, is he simply saying: "Forget about human rights, forget about all those issues, just do what the Chinese want"?

Lord Marsh

No, my Lords, not at all. The noble Lord knows far more about it than I do; but all the evidence in Asia is that human rights tend to follow economic advancement and economic improvement. I do not forget about human rights but the noble Lord knows better than I that the Chinese will not at this time give a degree of freedom which exists in the West. That is the reality. If they achieve a solution in Hong Kong with an improved economy and become closer to the West, that will do more to guarantee human rights in the future than any speech made in either of the Chambers in this place.

5.50 p.m.

Lord Skidelsky

My Lords, when we last debated the subject in this House, I supported the policy of the Governor of Hong Kong and I still do. Nothing I have heard this afternoon has changed my opinion; it has only strengthened it.

My noble friend Lord Geddes said that now was not the time for expensive principles or abstract idealism. Indeed, democracy as we know it is not suitable for orientals. I am amazed at the assurance with which he and others speak on behalf of the people of Hong Kong. But the noble Baroness, Lady Dunn, gave an effective answer.

It should also be noted and remembered that the only directly elected seats in Hong Kong's LegCo were won by democrats. The noble Lord, Lord Marsh, referred to Mr. Martin Lee. In a statement which he circulated for the debate, Mr. Lee says: The people of Hong Kong know that we cannot face 1997 without a sufficient measure of democracy to preserve our rights and freedoms and that there is absolutely no way a Beijing-controlled Legislative Council will be able to check abuses by a Beijing-appointed Chief Executive and Executive Council or preserve the rule of law after 1997". There is one voice of the people of Hong Kong. So what are people here doing by saying, "We know best. This is what the interests of Hong Kong are"? Those are authentic spokesmen of Hong Kong and that is their view. They want more effective local institutions in order to strengthen their position at the time when the handover takes place.

That is exactly what the constitutional proposals of the Governor are designed to do: to put legitimate political institutions in place by the time of the handover. The coming elections are the last before 1997, so they are the last chance of having a broadly representative system up and running before the handover.

It has been alleged by my noble friend Lord Cromer that the Governor's proposals have breached the letter and the spirit of the Sino-British Joint Declaration of 1984 and subsequent agreements. But the report of the House of Commons Select Committee on Foreign Affairs of 13th April this year concluded, on the basis of evidence of independent international lawyers, that that was not the case. The Governor decided to go ahead only after 17 rounds of talks with China proved fruitless.

Other noble Lords have suggested that the Governor should have consulted the Chinese before he made public his proposals in September 1992. It has even been suggested that, had those consultations taken place, an agreement might have resulted with the Chinese to go ahead on a programme of accelerated democracy. That may be so, but I beg leave to doubt it. Despite its fervent commitments to democracy after 1997, China wanted to inherit the colonial government. Probably there would not have been so much local pressure for accelerated democracy had the British position been due to continue. But in view of what happened in Tiananmen Square in 1989, the local demand was perfectly understandable and something to which the Government had to respond. So I do not accept the view that, had all that been done behind closed doors, there would have been some satisfactory agreed solution to the problem of the transition now. I believe that that is wishful thinking.

It may be asked: legal or not, is the Governor's determination to press ahead wise, given China's hostility? The first point is that the hostility has not suspended co-operation in other spheres. For example, an agreement is expected later this year on the financing of the new airport. China has agreed to release new land for sale which should ease pressure on housing prices. It has committed itself to the continuity of the Civil Service.

Nor have constitutional disagreements dented local business confidence in so far as this is registered by business conditions or by trade relations between China and Britain. Hong Kong's extremely high growth rate —estimated at over 5 per cent. this year—continues. As the noble Lord, Lord Wilson, said, the Financial Secretary has just produced a budget which reduces taxes and increases social spending while adding to the budget surplus—something which is enviable. Thus it is hard to argue that the fears of the pessimists have so far been realised.

But what of the future? To me the most important justification of the Governor's plan has always been the promise to hand over Hong Kong to China with a political system which can stand up for the interests of Hong Kong. It has always seemed to me that some opponents of reform, particularly businessmen or those with business interests, have placed too much faith in their ability to protect their interests and the interests of Hong Kong business by means of informal arrangements with the power-holders in China or by so-called knowledge of the oriental mind.

In 1997, Hong Kong will be handed over to China; but who in China will actually rule it—the central government, or the Guangdong province, or the army? In view of the tremendous uncertainty surrounding political developments in China, it is simply ordinary prudence—to put it no higher—to try to bequeath a local government who are not subject to every shifting whim of unstable mainland politics.

People have been mesmerised by the economic explosion of the past few years. But the one thing I should have thought was as certain as anything can be in this uncertain world is that there will be no soft landing for a major communist command system in transition to a market economy. Already Peking is losing control over revenue and monetary supply; there is a growing conflict between the central and the provincial governments. There is increasing inequality between the coastal and inland provinces; the behemoths of central planning are still in place, requiring to be dismantled. The basic legal and commercial infrastructure has not yet been established because the new capitalist gangsters do not want it. The capitalist enclaves in China are running wild, like the wild west in the 19th century.

A recent article in the Far Eastern Economic Review of 24th March 1994 says about all this hectic, frenzied pace of growth: Job and income security are in tatters, while savings and pensions have diminished. The environment is befouled. Crime stalks the towns and highways. So do hundreds of millions of migrant peasants. Fake products poison and maim consumers, miners die in cave-ins and sweatshop workers burn in factory fires as managers cut corners in pursuit of quick profits. The overheated economy throws up a host of populist issues for ambitious politicians to seize upon: inflation, corruption, crime, pollution, and workplace and product safety". That is all very familiar from what happened to the Soviet Union. I am not saying that the two situations are identical, but these are the problems of a transition; and there is, as I said, no soft landing.

The worst case scenario is that the People's Republic of China disintegrates after the death of Deng Xiaoping, not into old style warlordism but by the growing irrelevance of the central leadership and the deliberate ignoring of its directives—that is what happened to the Soviet Union—or the frenzy of economic development may continue, culminating in hyper-inflation and economic collapse. There may be a number of variations on those two themes. But the least likely is an orderly political and economic transition.

I come to my last point. It is argued that it is futile to proceed along the accelerated democratic path because China has promised to tear up the new constitution as soon as it takes over. The noble Lord, Lord MacLehose, regarded that as a certainty. So, I believe, did the noble Lord, Lord Marsh. It could be so. How seriously one takes the threat is a matter of judgment. But the costs of doing it would be very serious. Tearing up democratic constitutions is not as popular as it once was. Chinese economic growth largely depends on its access to foreign markets and foreign capital. It relies on most favoured nation status to sell its 40 billion dollars' worth of exports to the United States. It gets £2.5 billion a year of foreign investment. It wants to get into GATT. For all that it needs the good will of the international community.

Of course diplomacy should not be reckless. Risks should be sensibly assessed. But it is a hopeless business to try to calculate the effect of every one of one's actions on Chinese actions and sensibilities. In the end you have to do what you think is right and what the people of Hong Kong want. China can destroy Chris Patten's handiwork—but only at the cost of inflicting huge damage on itself. It is sensible in these situations to raise the cost to China of taking the kind of actions that it might have in mind to destroy Hong Kong's democracy. Therefore I conclude that the Government's risks have been well judged and that the Governor has shown statesmanship and courage of a high order.

6.3 p.m.

Lord Ennals

My Lords, I have great sympathy with the argument and conclusion put forward by the noble Lord, Lord Skidelsky. First, I thank the noble Lord, Lord Glenarthur, for enabling this debate to take place. We realise, by the atmosphere now, just how much the situation has changed since the debate that was held 18 months ago. I also want to say how greatly I appreciated the outstanding speech of the noble Baroness, Lady Dunn.

I am full of admiration for Hong Kong—for its active Legislative Council; for its courageous Governor, Chris Patten; and for its energetic and thrusting business community, which has been so brilliantly successful, enabling it to have the sort of buoyant economy which must be the admiration of most of the world and which certainly provides enormous hope for China. I welcome the plans to improve the quality of life in Hong Kong by increasing public expenditure—social welfare by 8.4 per cent., health care by 6.9 per cent., and education by 6.5 per cent. It would be lovely if a British government of whatever party could have a programme of social betterment to compare with that. I also greatly admire the work and the personality of Sir David Ford and the Hong Kong Office in London.

In every way, I want Hong Kong to succeed in the difficult road that it has plotted for the next three years of independence and the years that will follow. They will be perilous days, as the noble Lord, Lord Marsh, said, in a very realistic speech. Hong Kong will need all the support that it can get from Britain, the United States, the European Union, thriving Asian states, and indeed the whole world. The world will watch Hong Kong in the future as it has watched South Africa over the past four or five years.

I say all this in deep sincerity, because what I am about to say runs contrary, I know, to the views of the Government; of the Commons Foreign Affairs Select Committee, in its report on China on 23rd March this year; of the noble Lord, Lord Howe; of Sir David Ford; and perhaps of most Members of this House. I shall quote from Sir David Ford's letter to me of 9th May. I told him that I would be doing so. I agree with virtually everything in four closely argued pages which many others will have seen. However, the letter also said that, our principal concern at the moment is the outcome of the annual question of US renewal of MFN [most favoured nation] status for China. We are lobbying hard in Washington for renewal because the effect of curtailment on Hong Kong's economy would be severe … as a matter of principle, we do not agree that linking trade policy with political questions is right". As I say, I agree with almost everything else in the letter, but I profoundly disagree with the conclusion I have just read.

The very wording "most favoured nation" explains my doubts about the whole matter. In what respect is China today especially favoured? In what respect is its behaviour so favoured as to expect the United States or any other country to give it very special privileges? I believe that President Clinton was right. If there are to be economic rewards, they must relate to some achievement by the People's Republic of China, especially in the field of human rights. At present, China brings to its importing and exporting policies the same ruthlessness it applies to its political policies in one respect or another.

China has a reputation, in the eyes of the rest of the world, for being very severe. China has the record for the number of executions and for the number of people held in detention. We saw the brutal way in which the protests in Tiananmen Square were suppressed. I was talking only on Monday to a young Chinaman who had been in Tiananmen Square. We were talking about a television programme last Saturday night. It showed again the picture of the young man in Tiananmen Square standing in front of the tanks. He said, "What you did not see were the tens of thousands of people who were behind me". I want to bring to the attention of the House —because we have to face up to the facts—what is going on in the Chinese labour camps, the Laogai, as they are called. It is a situation we have to face when talking about our relations with China.

I have had discussions and done close work with Harry Wu, who spent 19 years in a Chinese labour camp. Much research has been done by the Laogai Research Foundation in the United States; and I am delighted that a Laogai research group has now been established in the United Kingdom. The facts are very grim indeed.

There are reckoned to be between 10 and 15 million people held in prison camps, often for very, very long periods. They include "counter-revolutionaries", "class dissidents", "anti-party, anti-socialist thinkers", "his-toric revisionists", and, of course, victims of the crackdown which followed the Tiananmen Square massacre in 1989. One of the deepest concerns is that most camps produce goods which are exported to the rest of the world, using forced labour which is not paid. The goods produced include coal, steel, sulphur, and gold and asbestos products, as well as tea, clothing and much else. Goods are exported to the West by trading companies in Guangdong, Hong Kong, South Korea and elsewhere.

That is the China we face. Some noble Lords may have seen the television programmes recently produced by Sue Lloyd-Roberts at the BBC as a result of research she carried out in China. Today the Chinese Government denounced both her and the BBC and accused them of fabricating evidence. I am afraid that they always denounce those who try to reveal the truth about what goes on in a society which the Chinese try to keep closed.

I ask, therefore, why China should be considered a most favoured nation. I am afraid that it reminds me too much of the way in which, nearly 60 years ago, the British government appeased Nazi Germany. We chose to ignore the monstrous practices of Hitler's Germany in the concentration camps because, in a sense, we wanted a quiet life. We were prepared to shut our eyes to breaches of human rights which were monstrous then and which indeed are still monstrous today. To have acted would have been interference in the internal affairs of Germany. We took the easy course, which may have been a contributory factor to World War Two. We shall shortly be celebrating the Normandy invasion. I shall be proud to be back on the beaches, as I was 50 years ago.

When we consider the great problem of China, we must ask ourselves how we contributed to the changes that have taken place in the former Soviet Union. The noble Baroness will have her own answer. Those changes were achieved not through appeasement or by granting most favoured nation status but by standing firm. I believe that China respects firm policies more than it respects people who simply go on their knees. That is why I have greatly respected the way in which the Governor, Chris Patten, has carried out his duties.

I was recently in South Africa doing some observer work and thought about the significance of UN sanctions. It was right that the world should stand out against a system which was grossly oppressive and cruel in the extreme. It was very largely because we carried out the UN sanctions that the situation changed there and people were forced to face a different kind of world.

Therefore, I plead with the Government at this crucial time not to go further down any road of appeasement. I do not think that it will do us any good. Nor, as the noble Lord, Lord Marsh, said, will it do us any good to look at the situation in Hong Kong in the interests of Hong Kong and blind ourselves to what is going on in the China with which Hong Kong will have to live.

I repeat that I believe we have to be firm. We have to stand up for our principles. Too often in the past we have failed to do so. I am sorry to have made what may be considered an unpopular and unhelpful speech. But someone had to say it, although it may have been better said by others. We have to find ways to influence the policies of the largest country in the world. We cannot do it on our own but must act in association with other countries. We have fought our debating battles with the Chinese too much on our own. We can do that on behalf of Hong Kong, certainly. But we should seek the support of the rest of the world. I hope that changes will be made to enable Hong Kong to fulfil its hopes and ambitions. That is what we in this House would all wish to see.

6.15 p.m.

Lord Astor of Hever

My Lords, I should like to restrict my comments to one important group; namely, those British industrialists and bankers whose interests tend to be forgotten in the dispute between London and Beijing over Hong Kong.

There appears to be strong evidence of discrimination against British companies who want to do business in China, and it is causing their executives serious concern. We are told that Sir Leon Brittan, the European Union Trade Commissioner, during his trip to Beijing earlier this year received assurances that Britain would not be discriminated against on trade matters for political reasons. That is a natural response from a country which is keen to get into GATT. Those assurances came from senior leaders of the Chinese Government.

However, the picture on the ground is very different. I fear that Chinese officials at other levels, regulators in the provinces and Chinese companies clearly have not got the message or are choosing to disobey it. China's ambassador to Britain had been warning numerous executives of leading British companies that they would suffer discrimination, as: Chinese people are offended by Britain's stand on Hong Kong and would therefore deal with companies from other countries". That was neatly played up in the Chinese media. I understand that the ambassador has been rebuked by the Foreign Minister. Can my noble friend the Minister assure me that she is satisfied that such warnings by the ambassador have ceased?

Hong Kong-based British merchant banks learnt that political rather than commercial considerations were the reason that they failed to secure even one of the 23 privatisation mandates recently awarded in China. Despite strong track records in Chinese business, competitive bids and full commitment to the exhaustive and expensive bidding process, they will be denied a share of the estimated 150 million dollars in underwriting fees. Provincial regulators have admitted that politics were not on Britain's side when hardly any contracts for the new Underground in Canton were handed out to British companies last year. Many British companies are being advised to disguise themselves as non-British and to bid through Australian or other foreign subsidiary companies if they are to have any hope of success.

Numerous executives of British companies here and in Hong Kong despair at the dispute over Hong Kong electoral arrangements, brought in at the eleventh hour, which the Chinese have consistently said they will dismantle. It will be many years before China behaves like a mature Western democracy. Their ignorance of the West is even greater than our ignorance of them.

Her Majesty's Government have responsibility for Hong Kong until 30th June 1997. Her Majesty's Government also have a responsibility to British companies, many of whom are substantial employers who wish to win business contracts fairly in a country with a population of 1,200 million and an annual growth rate of 13 per cent. In the first nine months of 1993, direct foreign investment in China amounted to 83 billion dollars. China now attracts far more direct foreign investment from OECD countries than any other developing economy. The United Kingdom economy is not so healthy that it can afford to be frozen out of so important a market.

Will the Minister assure me that the Government are mindful of the interests of those British companies when they negotiate with the Chinese over Hong Kong? Bearing in mind that, with the Hong Kong row unresolved, few people are likely to put money on a British company triumphing over a French, German or Italian one in a competitive bid for Chinese contracts, can my noble friend the Minister assure those companies that the Government believe there is little or no discrimination at any level against British companies in China? Finally, in the event of real discrimination being proven, which appears to be the case, what action will Her Majesty's Government take against China and Chinese exports to this country?

6.20 p.m.

Viscount Weir

My Lords, the position from which I speak is a plain and simple commercial one, as chairman of an engineering company whose current business in China and whose future prospects there, whether for exports or direct investment, are of great importance to it.

Like most people in industry with whom I have talked, for me the current state of relations between Britain and China arising over Hong Kong is a matter of the most serious concern. Surely two central considerations should, above all, have guided and determined our Government's actions in their negotia-tions. The first was Britain's primary national interest. Once 1997 passes, that national interest must mainly consist of maximising opportunities for British trade in China and protecting existing and future British investment in Hong Kong and China. The second consideration should have been the pragmatic recognition that, once Hong Kong reverted to China, then China would act towards Hong Kong according to its interpretation of the agreement made with us. It seems thoroughly unrealistic to imagine that anything else will or would happen.

Doubtless China's interpretation may differ from ours and it will be influenced by the way it views its political and economic self-interest. China will certainly weigh those two continually against each other. To put it more graphically, China may take the same view as someone who acquired a noisy goose which lays golden eggs. If the noise becomes intolerable they will probably shut the goose up a bit at the risk of having fewer of those valuable eggs, but they will presumably be extremely careful not to kill it or stop it laying.

A third consideration which should have influenced our attitude lies in the unique nature and history of Hong Kong. Britain started by simply pinching it, and later added to it through treaties which were hardly negotiated on equal terms. But then a combination of sensible British rule and remarkable Chinese and British ability and initiative converted it all into an economic jewel. Surely there should have been enough good will associated with the return of Hong Kong to China to have formed a basis which could and should have been built on. But instead of emerging as the most favoured trading partner and long-term friend of China, as should have been our objective and as should have been the result, we ended up in a political cul-de-sac.

I believe that that happened because in the negotiations with China on future political institutions in Hong Kong our Government were influenced by two matters: first, by what they read as a very positive public attitude in Hong Kong towards democracy; secondly, by their view of political realities in Britain which they believed made any obvious U-turn or backdown to Chinese pressure impossible to contemplate.

The position our Government have taken is essentially a short-term one. After all, the course of democracy in Hong Kong will be conditioned after 1997 by China's attitude at that time and not by our Government's attitude now, which, I suggest, is a domestic political consideration that influenced the Government but was probably exaggerated by them. Far too little weight was given to Britain's own long-term national interest in China, which will be primarily commercial rather than political. That should have been the priority and it was not.

Naturally, what we in industry wanted to hear from China at this point—and it should have been the central objective of our Government's policy to achieve it— was that the British were the people with whom China most wanted to trade. We should have had the best commercial relations with China because of our involvement with Hong Kong and not lesser opportunities because of it.

Of course, those of us trading with China are also told that we have not yet lost contracts. I am not too sure about that. But that does not diminish the potential risk and in any event is surely as much due to the good sense of the Chinese, who say, and at a very senior level, that, while they will try to keep trade and politics apart, we must recognise that if political relations were better, then trading relations and opportunities would be all the better too.

In the current unfortunate situation there are many constructive and important things that can still be done. Commercially we must try to press on as well as we can with a "business as usual" approach in China. That must have all possible government support of every kind, including a positive attitude to project finance in China. Politically within Hong Kong, however strong our general sympathy with democracy may be, our words and actions should perhaps more clearly reflect the obvious reality that after 1997 it is China's attitude that will condition the democratic process there and not our Government's attitude today.

Politically, towards China we must concentrate our main effort on resolving as many of the practical issues involved in transition as possible. Incidentally, I believe that that important process would be helped if the excellent Civil Service in Hong Kong were encouraged to have a wider and more direct role, as the noble Lord, Lord MacLehose, mentioned.

At the same time, however difficult it is, we must set our minds to recreating at government level a friendly relationship with China, which happily still continues almost everywhere at the commercial level. Here, support for China, which Hong Kong has certainly been giving, in the most favoured nation argument with the United States is obviously helpful, as is support for its application for membership of GATT. There are many other ways of helping the situation if we just set our mind to finding them.

In the end the interests of Britain and the interests of Hong Kong can be properly served only if we can convince China that the most important matter in our relations is not the impasse over Hong Kong but the sincerity of our shared interests in and support for China's economic and political stability and development and its future growth.

6.29 p.m.

Lord St. John of Bletso

My Lords, this is a wide-ranging debate with an impressive range of speakers who can draw upon immense personal experience in Hong Kong. Surrounding me are two previous Governors of Hong Kong and of course my noble friend Lady Dunn. In my brief contribution I shall draw a vivid distinction between the economic prospects and the socio-political considerations as 30th June 1997 draws ever closer. The Hong Kong issue is about much more than a remarkable financial success story and a healthy balance sheet. It is about the hopes of more than 6 million people who actually live there.

Of course, the two are frequently intertwined, but as the columnist Hugo Young noted in the Guardian earlier this year, there is a tendency for businessmen to look at the imminent transfer of sovereignty as essentially a transfer of ownership, a business transaction, and to equate their own profits with the social good. Others regard such members of the business community, more bluntly, as little more than fickle opportunists, with poor regard for the political aspirations of the general public. Such a charge may or may not be justified, but it should also be borne in mind that the interests of the general public are importantly underpinned and enhanced by the generally accepted view that Hong Kong's impressive economic performance will be sustained beyond 1997.

"Impressive" may be an understatement. As many noble Lords have already mentioned, real GDP has shown an average annual growth of 7 per cent. over the past 20 years. Hong Kong attained more than £184 billion of trade with the rest of the world last year. It was eighth on the global list of exporters and seventh among importers. The statistics make impressive reading. From harbour to border, Hong Kong is business. At the Stock Exchange, which reported another substantial rise today, and among the feverish hordes at the Fan Ling and Happy Valley racecourses, everywhere you look, everywhere you go, people are working tirelessly to make money.

This instinct will, I am sure, not disappear when the Crown colony becomes a special administrative region under Chinese rule. Nor, I believe, will it be discouraged in any way. There is no doubt that the colony's economic prospects are excellent and that there is a strong reciprocal relationship between Hong Kong and China. In the words of the noble Lord, Lord Glenarthur, in opening the debate, Hong Kong has a "catalytic" influence for China in the rest of the region, and as my noble friend Lady Dunn said in her excellent speech, they certainly need each other. Clearly, if it were not for the massive inflows of capital from Hong Kong, China's growth would have been substantially stunted, and were it not for the low land and labour costs in China that enabled that capital to earn handsome rewards, Hong Kong's growth would have been strangled by its own rising labour and land costs.

Hong Kong will continue to be a gateway, a place where the outside world can make sense of China and, just as importantly, where China can make sense of the outside world. Of course, the recent surge of development in Shanghai and other mainland centres will continue, but there will always be a role for Hong Kong in servicing China.

All this is very well, but I am particularly concerned for the prospects of the Hong Kong people beyond 1997 and, to this end, I am most grateful to the noble Lord, Lord Glenarthur, for having given us the opportunity to debate the Motion this afternoon.

So, my Lords, what is my major concern? In a single word, it is freedom—freedom without which no amount of fiscal reserves can make life tolerable. Beyond 1997, will the Hong Kong people have recourse to a free judiciary? Will they be able to read, watch and listen to a free media? Will their schools be free from political interference? Will they have freedom of expression? I am talking about everyday freedoms, my Lords, living freedoms.

I am well aware that the Joint Declaration of 1984 makes allowances for these basic rights to be preserved and I can only join the Government in hoping that these commitments will be fully implemented. However, I am mindful of the comprehensive recent report of the Foreign Affairs Committee, which many noble Lords have mentioned today, printed on 23rd March. In paragraph 208 the committee warned that the recent breakdown in negotiations between Britain and China had created an atmosphere where, fears that China may not honour its commitments to the Joint Declaration are very understandable". The committee concluded: We support the Hong Kong government continuing to implement measures that will strengthen the protection of fundamental human rights and freedoms in Hong Kong up to and beyond 1997". Even taking into account the recent assurances of Lu Ping, the Chinese official in charge of Hong Kong affairs, that China would act in strict accordance with the Basic Law, I endorse the committee's view.

The noble Lord, Lord Ennals, spoke about the recent publicity surrounding the issue of an alleged 10 million political prisoners being held in more than 3,000 labour reform camps, known as Laogai, which has further called into question China's credentials on human rights. I wonder whether in her summing up the Minister can say whether there have been any investigations or representations made to the Chinese on this matter. Can the Minister also tell the House whether any concessions are likely to be made to offer British citizenship to non-ethnic Chinese minorities in Hong Kong?

In practical terms, our options might appear limited by the fact that, come what may, sovereignty will be transferred in 1997 and, thereafter, we will have no clearly defined power over Hong Kong affairs. It is clearly of the greatest importance that we renew a co-operative working relationship with the Chinese, through which we can express our views, as soon as possible. With limited formal communication, I believe we have limited influence.

Many of your Lordships have been critical—perhaps over-critical—of the bold strategy of Governor Patten and have claimed that it has not been conducive to the presumption of talks, or, for that matter, has not been in the long-term interest of the people of Hong Kong. I would again refer to the report of the Foreign Affairs Committee which concluded that the Governor's proposals on electoral reform, which prompted the stand-off, are fully within the letter of agreements reached with China. It may be true that the Chinese are overly and unnecessarily suspicious of Britain's motives, but I do not believe it is right and proper to criticise a Governor who is already under virulent fire from so many quarters and who has set out his stall clearly and honestly to preserve the democratic rights and freedoms of the Hong Kong people.

Of course we can debate the style of negotiation best suited to dealing with the Chinese authorities in Beijing. Here I speak from a certain amount of experience. I studied Chinese law at London University in 1982 and spent almost six months living in mainland China. One style might be that, while one can often differ behind closed doors, it may be best to settle for the best deal possible to avoid any public confrontation. Conversely, another style might be that on occasions it may be more productive to set out one's views initially and to stick to them, perhaps even calling the other party's bluff in the hope that they will eventually acknowledge your convictions and return to the table.

In February this year the Financial Times offered what I regard as a fair and reasonable assessment of the Governor's policy when it wrote: It might seem naive of Mr. Patten to have imagined that he could persuade China, by a public demonstration, to accept more than it would in private talks … [but]… at least this way he is giving the Hong Kong people the chance to experience two years of relative democracy, if they so choose—and to leave China's rulers with the responsibility of dismantling it in full view of the world, if they so choose". That point was raised by the noble Lord, Lord Skidelsky, and I fully endorse his views.

At this delicate time in Hong Kong's history, I very much hope that this House will send a general message of support to Governor Patten who is surely only striving to secure democracy beyond 1997. We may differ on his ways and means, but let us not lose sight of the wider picture. The Governor is entitled to expect our support, and I trust it will be forthcoming.

6.40 p.m.

Lord Marlesford

My Lords, I believe that the people of Hong Kong owe a debt of gratitude to my noble friend Lord Glenarthur for having initiated this debate because it has demonstrated something which is rather important; that is the very considerable interest in and concern for Hong Kong which exists at Westminster. It is nothing new and it is a point to which I wish to return in a moment. I came back from Hong Kong last week. I travelled there by way of Singapore, where I worked 30 years ago and which I have not visited for 20 years. I was amazed at the transformation in Singapore.

I should like to mention two points which I believe are relevant to Hong Kong's competitive position. First, Singapore has become primarily an English-speaking country. Even the street names and other public notices are only in English. The educational achievements in Hong Kong are considerable, but the knowledge of English there seems to be diminishing rather than increasing. There is perhaps not much which the present British Government can do for the next three years, but I strongly suggest that China should seek to give this problem a high priority after 1997. Secondly, the quality of infrastructure in Singapore is now second to none. In one important respect it is a long way ahead of Hong Kong. I refer of course to the airport. Changi Airport is one of the best that I have been to and it has a wonderful road between the airport and the city. In terms of immigration, I suppose that two of the worst airports in the world now are Kai Tak and Kennedy. I was therefore amazed and delighted to find, when I had the chance of hovering in a helicopter over Chek Lap Kok last week, how far the new airport has already advanced. The site is practically complete. The bridge linking Lan Tao to the mainland is well underway; only the airport buildings remain to be started. I believe that agreement will be reached this year with the Government of China. I suspect that we shall find that the airport will be opened on schedule in the middle of 1997, although perhaps not until after the Hong Kong British flag comes down.

I would like to join the noble Baroness, Lady Dunn, in paying tribute to the political courage of Mr. Patten. I believe that he has no personal agenda other than that he wishes to do his best for Hong Kong. I also underline —because it has been ill-suggested in certain quarters, but not in this House today—that there is no question of Mr. Patten being withdrawn from his post, whoever leads the Conservative Party. I for one neither expect nor wish to see any change in that leadership. I strongly support the noble Baroness, Lady Dunn, when she says that the Hong Kong people expect the British Government to remain fully effective in the administration of Hong Kong up to 30th June 1997 and I support her view that Mr. Patten is vigorously and honourably fulfilling that obligation.

I too, I fear, must say a word about the political utterances and activities of Sir Percy Cradock. It has for some while been clear that to Sir Percy, Mr. Patten and all his works are a personal affront. I was at Chatham House on 23rd March to hear Sir Percy expand on his thesis. I felt that the very fluency of his delivery bordered on the obsessional. Sir Percy is a brilliant public servant who has given many years of loyal service to this country. That some of us may feel that his judgment has now become clouded might be a matter for private grief among his friends and former colleagues. But Sir Percy is seeking to take a very active public role as a commentator and adviser to China, both in public and in private. Therefore, I believe that it is perfectly fair to make one or two comments on what he has been saying and doing.

He seems to be seeking to incite the Chinese to abrogate some elements of the 1984 Joint Declaration, of which he was one of the architects. I stress that he was only one of the architects. I believe he would probably say—in fact I have heard him say—that the negotiating position to take with China is to have the best deal you can get, but you must have a deal. That was not a very strong negotiating position. I believe the reason that we had such a good deal in 1984 was that Members of the Government, starting with Sir Richard Luce and then going on to my noble friend Lord Howe, and finally to my noble friend Lady Thatcher, made it clear that there were conditions to be met without which there would be no deal. It was at that stage that many concessions were made by China and it was that that gave us as good a deal as we got.

On 23rd March at Chatham House Sir Percy said —and I noted his words at the time: The commitment of China to the Joint Declaration has been put under strain. We have acted unilaterally so we give the Chinese every pretext for doing the same". He added, I myself think the main elements of the Joint Declaration will survive". He then went on to claim that for Mr. Patten to have suggested that his reforms in Hong Kong are needed means that the present government are corrupt. That is plain nonsense.

The difference between pre-1997 and post-1997 is that up to 1997 the ultimate protection for the people of Hong Kong from ill-treatment and abuse from the local government of the day has always been the watchdog role of Westminster. We have demonstrated that again today in our debate. It is a fact of which Whitehall has always been well aware, not only in respect of Hong Kong but of other parts of the British Empire as well. After 1997 Peking takes over from Whitehall. But the arrangements inside the PRC do not include a Westminster. As I see them, Mr. Patten's reforms merely seek to give to the people of Hong Kong the facilities and self-confidence to draw to the attention of the world any improper or oppressive behaviour by the new administration of the SAR. I agree with what my noble friend Lord Skidelsky said on that. One of the real dangers for Hong Kong after 1997 is Government corruption: this I believe China would seek to avoid, and does wish to avoid.

It has already been said that it will be encouraging if there could be more personal contact between Mr. Patten and senior officials of the PRC. It must be a matter of regret that Mr. Lu Ping, the director of the Chinese Government's Hong Kong and Macau Affairs Office, did not feel able to meet Mr. Patten—it was not a question of not bothering, but a clear decision—when he visited Hong Kong earlier this month. As a result, his visit to Hong Kong was less successful from China's point of view. I believe that Mr. Lu Ping is not only a key figure in the Peking Government but is a friend of Hong Kong who understands very well the complicated capitalist chemistry of that place.

I was therefore very disturbed, as I know were others in Hong Kong, to read in the 6th May issue of the Eastern Express an article by Mr. Stuart Wolfendale. He was reporting on a lunch in the Foreign Correspondents' Club on 5th May attended by Mr. Tsang Yok-sing, who represents the pro-Peking Democratic Alliance for the Betterment of Hong Kong and who is also a member of the PWC. Mr. Tsang apparently regretted that Mr. Lu had not met Governor Patten, but he told Mr. Wolfendale that it was the influence of Sir Percy which had led Mr Lu not to do so. I quote from Mr. Wolfendale's article. They are his words and not mine. He said: 'This preposterous interloper had told anyone who would listen that to see the Governor would send the wrong message to the British".

Lord Marsh

My Lords, I am grateful to the noble Lord for giving way. That is a serious allegation to make of a very respected public servant. Does the noble Lord have any evidence, apart from just hearing that someone else has said that?

Lord Marlesford

My Lords, I shall of course be corrected if the report in the newspaper, of which I have the original, proves to be incorrect, but to date I have not heard it being denied, and it has had a quite wide circulation in Hong Kong.

My conclusion is that the advice of Sir Percy on matters to do with Hong Kong now sends the wrong messages to both the British and the Chinese.

I obviously read with great care, as did the noble Lord, Lord MacLehose and others, the keynote speech which Mr. Lu delivered in Hong Kong on 6th May. I found nothing exceptionable in it. However, I am aware that his reference to Hong Kong remaining an economic city and not becoming a political city has caused some disquiet. I should like to suggest that that reference can have a perfectly benign interpretation. To quote Lu Ping's words: There are always a handful who are so naive to think that they can turn Hong Kong into a political city in order to influence the mainland in the sense of politics. If that were the case, Hong Kong would be of negative value instead of positive value to China. This is disastrous for Hong Kong". We must never forget—this has been referred to by others —that the great imperative for any government in Peking has always been to maintain the unity and integrity of China. It is not unreasonable for China to have a very real fear in this matter. I would commend to those of your Lordships who have not read it the perceptive analysis by Gerald Segal in the February 1994 issue of the Chatham House monthly journal, The World Today.

The interpretation of Lu Ping's words about a "political city" are, I believe, substantiated by his reference in the same speech to, China would not want itself to be rampant with chaos. And his rhetorical question: Furthermore, can Hong Kong continue to prosper with a turbulent mainland at its back? He went on, I believe for the first time, to reveal that in 1967 it was Zhou Enlai, who at the very last moment stopped the 'Gang of Four' sending troops into Hong Kong". —I find that a fascinating insight.

Your Lordships will remember that following Tiananmen, there were calls from Hong Kong, backed especially by Martin Lee —who led the majority of those members of Hong Kong's Legislative Council who were directly elected in Hong Kong's first ever democratic elections in 1991—for "democracy" to be introduced into China. That was perhaps as understand-able in the wake of Tiananmen as it was in practice unwise. I am glad that since that time Mr. Lee has separated himself from that call. But I do not believe that it is at all to the interests of Hong Kong for outsiders to seek to interfere with the style of political life inside China.

That is why I do not believe it is productive for President Clinton to seek to link the renewal of MFN with human rights in China. I am conscious of what the noble Lord, Lord Ennals, said a few moments ago, and I support fully what he said about the deplorable situation that may exist in the case of human rights. However, I fear that President Clinton's touch in foreign affairs is proving rather uncertain in many areas including Somalia, the Balkans, Haiti, Singapore and even the Irish question.

It is not the application of a moral dimension in United States' foreign policy which I criticise. Indeed, I salute that. It is when that application lacks subtlety. At a time when the world is painfully climbing out of a recession which has cost many millions their jobs and self-respect, it is clearly the antithesis of all that GATT symbolised to consider the withdrawal of MFN from China. MFN is, incidentally, no special privilege for China. It is a status enjoyed by very many countries, including, for example, Libya and Iran.

Hong Kong's close links with, and interdependence on, the economy of China, would damage Hong Kong greatly if MFN were to be withdrawn. Indeed it could cause a setback in China's relations with the United States and again set back the cause, which I fully espouse, of trying to influence China over human rights. Of course one must also remember that no fewer than 900 American companies are established in Hong Kong, and direct US investment in Hong Kong is over £9 billion US dollars.

I am glad that, as we have heard from noble Lords, the threats of trade discrimination and reprisals by China against British companies have, in practice, not really materialised. My noble friend Lord Weir said that he was not sure, but he did not give any specific example.

I believe that many of those confrontations are political posturing which have understandably gathered the headlines. The realpolitik of Hong Kong is the economic and financial prosperity, epitomised by the stock market, the real estate market and, above all, the very widespread investment in Hong Kong by Chinese government institutions and family members of China's political leadership. As the noble Baroness, Lady Dunn, told us, Hong Kong now represents one quarter of China's economy—that is an astonishing figure —and two-thirds of her foreign exchange. A few years ago it was only one-third.

For China, the great priority must be to make the fullest use of Hong Kong before and after 1997 to contribute to the prosperity and stability not just of Hong Kong but of China. The time is probably now past for further political initiatives on either side. The noble Lord, Lord Wilson of Tillyorn, talked of the carriages attached to the through train. I believe that the engine of the through train is the Joint Declaration and the Basic Law. Let us ensure that they remain in good order.

6.57 p.m.

Lord Bonham-Carter

My Lords, I too join other noble Lords in thanking the noble Lord, Lord Glenarthur, for initiating the debate, which has been interesting not least for the statement of the noble Lord, Lord Marlesford, that he endorses the present leadership of the Conservative Party and also because we have seen how polarised is the situation in this whole matter. It has been an unbalanced debate. The balance was somewhat corrected by the last speakers. I shall return to the central issue in a moment.

First, I should like to draw attention to three issues which are in some respects connected with human rights, to two of which I have drawn the Minister's attention. It goes without saying that the British Government have a special responsibility for the people of Hong Kong. There are two groups which feel—and who is to say that they are wrong? —that they are vulnerable. The first group is that of the Hong Kong World War II widows of British servicemen. The second group comprises the non-Chinese ethnic minorities. There are 52 widows of British ex-servicemen. Their ages are between 60 and 80. They have asked for British passports.

On 28th April the Home Secretary announced that he agreed to a special arrangement for the wives and widows of Hong Kong Second World War servicemen, guaranteeing their entry into the United Kingdom whenever they wished. They would be able to have a personal entry endorsement in their travel documents stating that they were entitled to enter the United Kingdom for settlement. That binds the UK Government to admit the ladies for settlement.

I should like to make a few observations on what I regard as that rather unhappy compromise. First, the guarantee is conditional. The letter makes it clear that, whatever the stamps on the permit, the widows must still be resident in Hong Kong directly before arrival in the United Kingdom.

Secondly, a person at present in the UK on indefinite leave to stay remains subject to immigration control and so may lose that status, and so may be deported, and so does not have free movement within the Community.

Thirdly, and most importantly, the stamp does not give those few rather old ladies, who are widows of British ex-servicemen, what they asked for, which is the dignity of a British passport. They do not want to come to this country. How can they come to this country? They cannot afford to. They cannot afford to establish residence here for a stay of three years. Where would they stay? The Union Jack Club? The proposition is ludicrous and undignified. What they want is the dignity of a British passport. What they fear, staying in Hong Kong, is victimisation after 1997. They believe that if they had British passports, they would be likely to be better protected.

The Home Secretary has the discretion to give those passports. Why in the name of fortune can he not do so? I plead with the Minister to use her influence and to plead with him to go back on that rather mean-spirited and ungenerous decision which, as has been said, is a tacky and miserly compromise. That is the first issue that I wanted to raise.

The second is the old issue of the non-Chinese ethnic minorities. We passed a resolution in this House. We passed a Private Member's Bill in this House which was supported by the Select Committee on Foreign Affairs in both its last and present reports. That Bill is supported also by the Governor of Hong Kong. It is unanimously supported by LegCo. It is supported by the two previous Governors of Hong Kong. Indeed, so far as I know, only the Home Office opposes it. I think that for once the Home Office should bow to the judgment of others on this matter.

I should now like to ask a question, to which the noble and learned Lord, Lord Archer, referred and about which I hope that the Minister will give us some information. I refer to the question of the human rights commission which the Governor has rejected. He may have had very good grounds for rejecting it. He may be quite right that if you have a Bill of Rights, you do not need a human rights commission. However, the people in Hong Kong are rightly worried about the protection of their rights after 1997. If the Governor is to turn down a human rights commission, I think that he should state what protection he is going to build in legally for their protection after that date. I hope that the Minister will be able to reassure us on that issue.

As many noble Lords have said, and as the Minister has told us, Hong Kong is spectacularly successful. It is a most splendid example of what a city state can contribute to civilisation and prosperity. In fact, it is one of the last city states to survive. There are very few in the 20th century. It is the inheritor of an ancient tradition dating back to Ancient Greece and continuing through Renaissance Italy.

However, I must confess that, unlike the noble Lord, Lord Glenarthur, I found visiting Hong Kong in the present circumstances a somewhat melancholy experi-ence. In 1997, it will fall into the hands of a regime which, if one listens to the speeches that have been made this afternoon (whether by the noble Lord, Lord Marsh, or the noble Lord, Lord Ennals) or if one accepts the words of Sir Percy Cradock, is, to say the least, a regime of brutal tyranny which is hardly worthy of governing the brilliant, humorous and sophisticated inhabitants of Hong Kong. Even if that regime understands the infinite financial and commercial importance of Hong Kong to China, which I suspect that it does, and even if it understands the value of the animal that it is about to acquire, I very much doubt whether it knows how to look after that animal. Everything that the noble Lord, Lord Marsh, said, confirmed that rather sceptical view of the future.

Lord Marsh

My Lords, I am grateful to the noble: Lord for giving way; but since he mentioned my name, perhaps I should say that if I gave him that impression, I misled him. I think that the Chinese are perfectly capable of looking after Hong Kong. It is just that they have a different approach to opposition to the system than we have in Westminster or Hampstead.

Lord Bonham-Carter

My Lords, I accept the noble Lord's assurance. I think that what I am about to say will indicate why I have reservations about that assurance.

The polarisation of opinion in Hong Kong about its future is as acute as it is in your Lordships' House. I have found it difficult to see how the two points of view can be brought together. They start from two totally different analyses of the nature of the problem and go on to give two different approaches to handling it. Those who oppose what I call in shorthand the "Patten policy" see it, in the words of one of them who has spoken to me, as an exercise in futility. From the position that he has adopted, they see no way out but to retreat and to kowtow—even if M. Balladur's attempt to do precisely that has hardly proved that that tactic would be particularly productive.

That is the view of the bulk of the business community—but not of all the business community. They argue that British policy changed radically in 1992 —and that has been argued here today. They argue that the Patten proposals are not in accordance with the Basic Law, the Joint Declaration or the programme of gradual and orderly progress. Beijing advocates argue, and their position is identical—oddly enough (or perhaps not oddly enough)—with that of the business community, that China is committed to treating Hong Kong differently from the People's Republic, and that it must be trusted to carry out that undertaking.

Almost the only matter on which that group and those who support Governor Patten's policy agree is; on the importance of the events that took place in Tiananmen Square. In my experience, according to both groups that was a watershed which changed relations between China and Hong Kong and between Hong Kong and China. One million people in Hong Kong demonstrated against China. In my experience, according to both parties, before the events in Tiananmen Square a rational consensus could sometimes be seen to be arrived at despite heated disputes. After Tiananmen, everything changed. After Tiananmen, the Chinese Government saw Hong Kong as a poisoned pill and as a dangerous influence on the internal politics of China against which China had to protect itself. Nonetheless, the opponents of the Patten policy go on to argue that unless we trust the Chinese to honour the Basic Law, and unless we get China's blessing, nothing can be achieved: the Patten reforms will be abolished in 1997; the transitional arrangements—which are essential to a smooth transition—will not be made, and the "through train" will run into the buffers in 1997.

The other position is, of course, totally different. The position of those who support the Governor—I am not saying that it is his position; I would not pretend to say that it is his position—and even of those who go further, like Mr. Martin Lee, who has been mentioned in the debate, is to agree that Tiananmen Square was of the greatest importance, but that its importance was rather different from that which I have just described. Its importance was to shake the Beijing regime to its foundations—and I agree with a great deal of what the noble Lord, Lord Skidelsky, said—and to reveal its fundamental vulnerability.

While I do not deny the impact which Tiananmen Square had on China's perception of Hong Kong, to that group, it was most important because it revealed the fragility of Deng's regime. That fragility had been caused by the very reforms and revolutionary economic strategy which he had introduced and which he supported so fervently. By going for an economic revolution and allowing people to make their own economic choices, by allowing them to receive their own economic rewards and by opting for professional-ism in management rather than party membership, the party had abandoned two things: it had abandoned its ideology on the one hand; and it had abandoned its patronage and ability to control the lives, jobs, rewards, housing and education of its children. By that patronage and control over individuals and their families, the party maintained its control over society as a whole. Deprived of its ideology and patronage, people were asking what would be the future of the party in China in the long run. Indeed, I put that question to a senior representative of, as it were, the Beijing party in Hong Kong. I asked him what would be the future of the party in China in the long run and his answer was, "That is a very good question".

In my view, the debate taking place in Hong Kong is about what will happen to Hong Kong after 1997. It has been widely reported and repeated in your Lordships' House today that it is about democracy. But in my view, to describe it in those terms is to obscure the central issue at stake. The degree of democracy which the Patten reforms would introduce is, in his own words, modest. He said that it is so emaciated as to embarrass a genuinely democratic society.

In my view what is at stake is whether, after 1997, Hong Kong can remain a centre of international commerce and finance. I believe that it can only do so if the following conditions are satisfied: first, if the rule of law obtains; secondly, if its institutions retain a measure of independence and transparency; and, thirdly —and perhaps most important—if the corruption which is pandemic in China is kept out of Hong Kong and if Hong Kong is protected from that corruption. Unless those conditions are maintained, although Hong Kong can be a prosperous Chinese city like, for example, Shanghai, it cannot possibly be a successful centre of international commerce and finance to its own benefit and the benefit of the Pacific Rim as a whole.

The Patten reforms enlarge the electorate of all of the functional constituencies. The purpose of that was made plain by Mr. Patten in October 1992; namely, to reduce the opportunities for corruption and to make the elections—I use his word—"unriggable".

As the recent report of the Foreign Affairs Committee records, in 1991 a person who was elected to LegCo was imprisoned for bribing electors in his functional constituency. His electorate consisted of 30 people. That is like a rotten borough. The purpose of the reform was to reduce the number of rotten boroughs. Anyone who looks at the parliamentary history of this country will know that before 1832, corruption was rife. By the end of the 19th century, this country was one of the least corrupt countries in the world. That is because we did what Mr. Patten is trying to do, successfully or unsuccessfully, in Hong Kong.

I must confess that I am not puzzled by the Chinese objections, violent and intemperate though they may have been. It is perfectly obvious that from their point of view it will be much easier to manipulate an electorate of 30 than to manipulate an electorate of 2,000 or 3,000. For that reason, I believe that the thrust of the Patten reforms is in the right direction.

Having listened to the debate, until the noble Lord, Lord St. John of Bletso, spoke, people would not have understood that the Foreign Affairs Committee, which is a cross-party committee, has just issued a report which supports unanimously, so far as I know, the Patten approach to Hong Kong. That should be taken on board. The debate that we have had here has been, as I said at the beginning, very unbalanced. I hope that the speeches in the last third of the debate will remove the impression that this House is not in touch with what is happening elsewhere.

7.16 p.m.

Lord Clinton-Davis

My Lords, like other noble Lords, I express the appreciation of noble Lords on this side of the House to the noble Lord, Lord Glenarthur, for initiating what has been a fascinating debate, although I have to say that I believe that some elements of the debate have been distinctly unhelpful. I should like to know how some of those who have expressed such brash criticism of the Governor feel that those criticisms will help to resolve the very difficult position which he confronts, and, indeed, which confronts this country and the people of Hong Kong.

Two themes have been deployed during the course of the debate which I certainly cannot accept on behalf of those on this side of the House; namely, that somehow or other the people of Hong Kong do not want democracy—I believe that the noble Earl, Lord Cromer, said that—or are ill equipped to take on the role of a democratic society. I thought that that was fairly well nipped in the bud by a remarkable speech by the noble Baroness, Lady Dunn, and also by the noble Lord, Lord Willoughby de Broke.

Another theme was that somehow or other, overtly or implicitly, the whole question of human rights should not be allowed to intrude into our relations with China because they may bedevil business relationships. It was suggested that they, in effect, hardly add up to a row of beans. I regret that view and, indeed, resent it.

Lord Marsh

My Lords, I am grateful to the noble Lord for giving way. Would he name a few of the noble Lords who actually said that human rights do not matter and are not worth a row of beans?

Lord Clinton-Davis

My Lords, if the noble Lord had listened, he would have heard that a number of your Lordships hardly mentioned human rights. The whole question which obsessed them was that business interests may be damaged. That is my impression of what occurred. The noble Lord made his own contribution in that regard.

I believe that China will need special help from a prosperous and free Hong Kong. Hong Kong is in an almost unique position to be able to provide that help. That is significant when one considers the future relationships between the three countries concerned. That was a point made by my noble and learned friend Lord Archer at the beginning of the debate.

Some argue that belated recognition of the need for democratic reforms in Hong Kong constituted an unnecessary provocation to the Chinese Government; that it might have constituted a waste of time because the Chinese Government at some stages said that they would overturn the changes when they took over Hong Kong in 1977; and that all that, therefore, was not in the best interests of the people of Hong Kong. In fact, I believe that it was the noble Lord, Lord Marsh, who effectively said that what we fail to comprehend is that China holds pretty well all the negotiating cards. Therefore, I have not misquoted him in that regard.

Lord Marsh

No.

Lord Clinton-Davis

My Lords, I am glad to see that the noble Lord accedes to that view.

I do not believe that that assertion is right. I believe that such expressions of view seriously underestimate the fact that, while China is undoubtedly in a strong negotiating position—indeed, no one in their right mind would deny that—it also has a great deal to lose. China has many of its people in Hong Kong. It has invested a great deal of money in the colony, and, therefore, has a massive interest in securing the future well-being of Hong Kong. I understand that China's direct investment in Hong Kong is greater than that of the United States and Japan. It follows from that that in the long term political stability will become an important factor in resolving such problems. However, I also believe that political stability necessarily involves respect for human rights and for developing democratic process.

China must have regard to its continuing and, it is to be hoped, burgeoning relationship with other countries, notably the United States. China must be aware—and this is another point that was made at the beginning of the debate by my noble and learned friend Lord Archer —that the United States-Hong Kong Policy Act is relevant. If China were to abolish the elected legislature in Hong Kong in 1997, having spoken to an American lawyer (who is not of course the last word in all of this but is someone who is well versed in US law), I understand that there is certainly a high possibility that she would no longer be able to enjoy separate GATT membership. The whole question of the most favoured nation status was something that the noble Lord, Lord Marlesford, did not care to introduce into the debate. He may or may not be right, but the fact remains that that status and other existing arrangements could be in peril. Those factors cannot be excluded from Chinese thinking on such issues. I put it no higher.

Additionally, if China were to seek to reverse electoral reform, I believe that it is conceivable that that would be perceived internationally as an interference with the basic rights of the people in Hong Kong. Surely it must always be more difficult—certainly for the countries that are in the least bit concerned about international opinion, and I do not believe that China is unconcerned—to dismantle something that has been created than to leave it alone. The noble Lord, Lord Marsh, and I have been good friends for many years and we cross swords quite happily from time to time. I know that he thinks that that is all a bit fanciful and somewhat illusory. I see that he is shaking his head.

Lord Marsh

No, my Lords; I nodded my head.

Lord Clinton-Davis

My Lords, I apologise. The noble Lord nods his head. I must get it right.

I believe that the noble Lord underestimates the importance of such issues. He may be right or I may be right: only time will tell. However, is it not conceivable that China might wish to leave herself some room for manoeuvre? Is it not conceivable that that was the thought that lay behind the comments of Mr. Tsang Yok-Sing, the chairman of the Democratic Alliance for the Betterment of Hong Kong (a very strong pro-Beijing political party) when he said: Beijing realises that they can't cut all contacts with the United Kingdom and Hong Kong Governments and achieve a smooth transfer of sovereignty in 1997". Then there was the statement by Mr. Lu Ping, who has been frequently referred to during the debate. Not very long ago he said: I believe that we can reach an agreement on the airport acceptable to both sides". So he is prepared to consider the continuation of the negotiations about the airport regardless of the discussions that are taking place with regard to Hong Kong generally. That is quite a significant assertion. Incidentally, in parenthesis, I should like to ask the Minister what is the current state of play regarding the negotiations on the airport? I gave the noble Baroness notice that I would ask that question and no doubt she will be able to enlighten the House.

China will be strongly desirous of enhancing international trade relations and that will include the United Kingdom. China has a major programme of economic reform—a massive infrastructure programme covering transport, telecommunications and energy, which will involve billions of pounds. The Chinese will need all the expertise and skills that they can gather. Those are skills and expertise that companies and experts in this country are able to provide.

It has been said that Britain's trade has been increasing with China. But, on the other hand, I understand—and the noble Baroness will be able to correct me if I am wrong, because it is only hearsay evidence—that with some 2000 joint ventures involving international companies, British companies have been involved in only six of them. Of course, the noble Lord, Lord Astor of Hever, would no doubt say that that is part and parcel of the blatant discrimination that is being exercised against British companies. But I wonder whether that is so or whether companies in this country have not made sufficient efforts to enter into the necessary consortia so as to be successful in the tenders.

If there is such blatant discrimination, I wonder what the position was before the dispute arose; that is, before 1992. Were we making strong incursions into the Chinese trade scene at that time? Was the tap suddenly turned off? What is the evidence? Further, why does the Chinese Embassy in this country and the administration make such strenuous efforts to advertise in this country the opportunities for trade that exist in China if they are so anxious blatantly to discriminate against the British as a result of Hong Kong? It does not add up. I do not think that the Chinese are in the business of wasting their money on profitless advertising. They are anxious to improve the economic conditions of their people. I also believe that they want to be well thought of internationally. They do not want to be ostracised. Of course, there are examples such as those chosen by the noble Lord, Lord Marsh, earlier, but I believe that they were short-term. They are not indicative of the situation in the long term.

Because of all those factors, should we remain silent about breaches of human rights that are undoubtedly occurring? I thought that the contribution made by my noble friend Lord Ennals was very interesting in that regard. Despite the criticisms and the allegations that have been made, is there any evidence that China is issuing any threats to the economy of Hong Kong? Indeed, the reality is—and I think we can gain some reassurance from this—that, despite previous propaganda to the contrary that Britain was somehow or other engaged in milking the last penny, or whatever the proper denomination is, from Hong Kong, all that criticism seems to have quietened down. The Chinese recognise that the first post-colonial government in Hong Kong will inherit reserves to the tune of about £23 billion. That was the prediction only the other day of Sir Hamish McLeod, the Financial Secretary.

What alternative was there to the position taken by the Governor with the support of the Government? Was it—as I think the noble Lord, Lord Geddes, put it— lacking in realism and out of keeping with the needs of Hong Kong? Or, as the noble Earl, Lord Cromer, put it, was it that the people of Hong Kong did not want democracy but the Governor was prepared to fly in the face of that deep resistance? Or was it that democracy was so totally unfamiliar to them that it buttressed their resolve not to have it? Or was it that confrontation necessarily imperils the people of Hong Kong and dissidents on the mainland, which was the thought of the noble Lord, Lord Marsh?

Of course, it is a difficult and sensitive problem that confronts the Governor. He has to deal with it in reality. And the people in Hong Kong have to live with it. But they have made their position abundantly plain. It is the very reverse of the thoughts that have emerged largely from the business community who want to convey a certain impression. I do not think those people do themselves a service and fortunately it is not the entirety of the business community who take that view. They argue that it is only by doing business with China that eventually the Chinese people and the people of Hong Kong will be released from the tentacles of despotism.

I am all in favour of doing business with China, and I have indicated that. But, equally, I feel it would be wholly wrong to insulate China from the grave criticisms that have been made by representatives of organisations whom my noble friend Lord Ennals and others have met over the past few days. It is an impossible course, I suggest, for democrats to accept the suggestion: say nothing, do nothing to offend. That is impossible. Even if, for the sake of argument, we were to concede that the Governor might have gone about things somewhat differently, the question now is: would it be faintly feasible to reverse it all? Even if the argument was conceded entirely, what evidence exists to establish that China would be more willing to accept the "through train" arrangements giving LegCo members elected in 1995 security of tenure until 1999?

What is ineluctably clear is that the Governor would have come under massive criticism in this country and in Hong Kong if he had made no effort at all to set up a representative legislature before handing over Hong Kong to Chinese rule. As I said, I believe it has been highly unprofitable to engage in the negative arguments and sentiments mirrored in some speeches in this debate. That simply deflects attention from the basic theme that has now to be pursued.

The work of the Select Committee and its unanimous report are quite excellent. I wish to refer to three of its conclusions and I should like to know whether the Government are in a position to reflect upon them today. One recommendation was that Britain should set up an independent commission to protect human rights in Hong Kong after 1997 and widen the circle of Foreign Office diplomats with a specialist interest in China. That is a useful suggestion. It does not necessarily ensure that human rights would be protected but it is always good to monitor the situation and to let the world know that it is being monitored. It is also suggested that there should be closer contacts at all levels with China and that Britain should play a leading role in trying to advance human rights by opening a debate with Peking on self-determination for Tibet which is something that worries the people of Hong Kong because they fear they might go the same way.

I wholly agree with the noble Lord from the Liberal Democrat Benches that full British citizenship should be given to 7,000 non-Chinese ethnic minority residents. I wholly agree also with the proposition that more teaching about China in British schools and universities needs to be undertaken. I would like to know whether the Government have any views about those matters that they can disclose to the House tonight. I conclude as I began by saying that this has been an excellent debate. We are indebted to the noble Lord, Lord Glenarthur, for the opportunity to discuss these matters which have the most major significance for the people of Hong Kong who, through their dedication and effort, have made that country very strong economically and who desperately —in my judgment, on the evidence—want to make sure that they can at least have the prospect of democracy ahead of them.

7.35 p.m.

Baroness Chalker of Wallasey

My Lords, by leave of your Lordships' House I rise to respond to some of the issues raised in this important debate which has lasted for more than four-and-a-half hours. I will, of course, respond by letter on those issues I cannot cover. It has been an interesting and varied debate, fascinating for the insights provided by two former Governors of Hong Kong and particularly by the noble Baroness, Lady Dunn, who has travelled so far to tell us what is really happening in the Legislative Council.

One could not have heard two more varied speeches than those of the noble Baroness, Lady Dunn, and my noble friend Lord Cromer. Some of the speeches were highly charged; I do not consider that to be helpful at this most delicate time. But I believe that the debate has done credit to this House and I hope to reflect on the contributions made in all parts of the Chamber so that we can learn from the experience of others and make sure that we take forward the information, particularly the balanced information given by my noble friend Lord Skidelsky and the noble Baroness, Lady Dunn, in their appreciation of what is going on.

I was surprised and saddened by some of the personal attacks made by certain of your Lordships on the Governor of Hong Kong. Governor Patten only went ahead with the proposals—my noble friend Lady Thatcher referred to this matter in our debate in December 1992—with the support of the Government. He only went ahead with the proposals, as the noble Baroness, Lady Dunn, said, following 17 rounds of discussions. That point was also referred to by my noble friend Lord Skidelsky. My noble friend Lord Skidelsky was also right when he said that there was no way, after 1989, that the Hong Kong people would not seek greater involvement in Hong Kong's politics. I believe that has been said to nearly all visitors to Hong Kong. This is what the Government have sought to respond to with great restraint and, may I say, with none of the confrontation suggested by the noble Earl, Lord Cromer. Britain has never chosen confrontation: we have sought co-operation. If the noble Earl were to be privy to some of the details of those 17 rounds of discussions, he would know exactly why I refer to that with a great deal of feeling. A great deal of patience was shown in those discussions.

The noble Baroness, Lady Dunn, was absolutely right when she said that there is disagreement on some issues. But that is no reason why we should not agree with the People's Republic of China on other issues. That indeed is exactly what is happening as regards the airport. I shall refer to that matter later. I believe the noble Baroness was also right to say that the Governor is vigorously and honourably seeking to fulfil the needs of the Hong Kong community. As the noble Lord, Lord St. John of Bletso, said, it is a matter of the hopes of more than 6 million Hong Kong citizens who live in Hong Kong and for whom we have to work for a solution. We continue to work for a solution.

I believe it would be a real shame if, in Britain's last major colony, we rode roughshod over the wishes of the people of Hong Kong by setting up a sham democracy. If we ignored their wishes that is exactly what it would be.

There is evidence in repeated opinion polls that economic confidence is partly balanced by whether there is confidence in political stability. That is why it has been the Government's policy to allow the Legislative Council to decide. That is what it does now. As the noble Baroness said, it is now considering the second stage Bill. That addresses more difficult issues, including the question of the functional constituencies and the election committee. However, I hope to set; that Bill pass before the summer recess. I know that the Legislative Council is working to try to reach the right solutions.

Despite what was said by my noble friend Lord Glenarthur, who has generously given us the opportunity for this debate, I do not believe that we ever had an option in Hong Kong after Tiananmen Square in 1989 to agree with China behind the backs of the people of Hong Kong. That would have come undone in Hong Kong very early and would probably not have survived even after 1997.

Nor do I believe, as the noble Lord, Lord Clinton-Davis, said, that the Governor of Hong Kong or indeed the British Government are being idealistic. We have always made it absolutely clear that we can only proceed if we proceed with LegCo. That is the onus of the debate.

The noble Lord, Lord Marsh, said that he saw a change of policy in 1992. There may have been a change of tone and style, but certainly there was no change of policy. Co-operation on the basis of the Joint Declaration was in the best interests of Hong Kong and it will remain British policy.

The Governor has publicly committed himself to taking full account of LegCo's views. The noble and learned Lord, Lord Archer of Sandwell, asked about that. As your Lordships will know, the Governor instituted a regular Question Time. He has produced more openness in the running of Hong Kong, perhaps not as much as he would like to see or the members of LegCo would like to see, but it is a sound beginning. Certainly it is unquestionable that the British Government and the Hong Kong Government share the commitment of LegCo to working with China, because that is the only way ahead after 1997.

My noble friend Lord Geddes talked about a fully-fledged Westminster democracy. Certainly the proposals of the Governor of Hong Kong are in no way for a fully-fledged Westminster democracy. The Governor has brought forward a modest increase in pace, but, as I said earlier, that is in response to the wishes of the Hong Kong people. There is certainly no intention on the part of the British Government or the Governor to make a decision for LegCo. LegCo will make it for itself.

Business and politics must work together. That is; why speaker after speaker in the debate has underlined the importance of the rule of law that is needed for prosperity. We have been interested to talk to many visitors, not only from Hong Kong but also from China.

The noble Lord, Lord Marsh, devoted much of his speech to the failure of Lu Ping to meet the Governor during his recent visit to Hong Kong and implied that it was a failure on the part of the Governor. It is interesting to note the comment of my noble friend Lord Marlesford. It is clear from research in Hong Kong that it was the fact that Lu Ping felt unable to meet the Governor which damaged Hong Kong confidence. I believe that the co-operation we are seeking to build and which the Hong Kong people want is something that Director Lu Ping will come to see is most important for the future.

I say publicly now that we hope that Lu Ping will come to Hong Kong more often and will meet a wider range of Hong Kong people and begin to understand the vibrancy of the Hong Kong economy and the determination of the Hong Kong people to continue to play their part, not only in Hong Kong but also with China in the great investment which they are making in China.

I was asked by my noble friend Lord Glenarthur about the all-important future commercial and consular representation. He may not know of the new Consulate-General building being built in central Hong Kong. I understand that it will be the largest British diplomatic post in Asia. That is because there is a most important job to be done. The commercial relationships that will be executed through Hong Kong will be vital, not only for the colony after 1997 but also for the SAR.

My noble friend Lord Astor of Hever asked about comments made by the Chinese ambassador to the Court of St. James about discrimination against British firms. The Chinese ambassador will speak for himself but any threat to discriminate against British business is in nobody's interests. It is not in the interests of the Chinese people. It is certainly not in the interests of Hong Kong, and it is not in the interests of Britain.

I can find no hard evidence of discrimination against British business. I looked into the matter before coming to our debate today. A substantial number of contracts have been signed and our businessmen are showing prudent confidence in the China market. I understand that within the past month Cable and Wireless has signed a 30 million US dollar contract to provide an undersea cable-laying facility. BP has reported a £3 million contract for exploration work in Xinjiang and has signed a letter of intent for 200 million US dollars for an acetic acid plant in Sichuan. Yorkshire Water has been awarded a contract worth £5.5 million to build a water treatment plant by the Daqing Petroleum Company. There are many other instances from last year and the early part of this year which show that there is no campaign of discrimination.

Prime Minister Li Peng has said that China will not adopt a discriminatory policy towards British companies. He has said that they are welcome to come to China, to compete on equal terms and to develop co-operation on the basis of equality and mutual benefit. Therefore, I do not believe that there is discrimination. Certainly, those who lead those companies are making sure that business co-operation continues. Vice-Premier Li Lanqing assured Sir Leon Brittan in mid-March that China had no intention of discriminating against us. I believe that that was sincere.

One of our central aims must be to make sure that business can continue to work in the interests of the Hong Kong people, but also in the interests of UK/China relations. There is no doubt that the investment that is going into China through Hong Kong is a real success story. I mentioned in my opening remarks the enthusiasm which my noble friend Lord Howe found on his visit with businessmen from the agri-food industry. My honourable friend Mr. Needham, the Minister for Trade in another place, has made four visits in two years, each with businessmen. He plans to take another group very soon. The China-Britain Trade Group has made 18 missions to China this year, the biggest ever programme of such missions. China wants the trade and Hong Kong is helping China to get that trade. That trade is continuing despite the political disagreements which have been referred to throughout our debate.

The other aspect of the trade issue is how strongly the Hong Kong economy is growing. GDP increased by more than 5 per cent. in 1992 and 5.5 per cent. in 1993. I believe that investors are taking a long-term view and that trade with China will continue to boom, both directly and through Hong Kong. Certainly, the British Government will be doing all they can to increase the trade, not merely out of self interest but because we believe that it is good for Britain, good for Hong Kong and good for China. Where we have good trade links, we are more likely to have influence on other issues too. I shall come to those human rights issues in just one moment.

The noble Lord, Lord Clinton-Davis, asked about the new airport. The noble Lord, Lord Marlesford, gave a graphic description of the building of the new airport already taking shape at great speed. It is one of the world's largest construction projects. There is no doubt that when more than half the world's deep dredging fleet is working in Victoria Harbour this airport means business. I hope that agreement can soon be reached with the Chinese on the financing package. Lu Ping said in Hong Kong recently that he thought that agreement acceptable to both sides could soon be reached, as I think the noble Lord, Lord Clinton-Davis, mentioned. Certainly, the project is excellent value for money. Any big cost reduction would compromise the scope of the project. That is why we hope the full construction of the first-rate airport that Hong Kong so badly needs goes ahead.

The noble Lord, Lord Ennals, and my noble friend Lord Marlesford asked about the most favoured nation status renewal for China. Obviously, there would be an economic impact on Hong Kong if MFN status were not renewed. The Hong Kong Government estimate that there would be a reduction in Hong Kong's overall trade of about 6 per cent., a loss of up to 70,000 jobs, and a drop in the GDP growth rate of over 2 per cent. We share the concerns expressed about human rights in China. But there are ways to go about resolving those issues. My noble friend Lord Marlesford was right, as I believe he said, that the United States administration should give full weight to the damage which could be done to the Hong Kong economy by the withdrawal of the most favoured nation status for China. But that does not mean that we should not be talking with China about the very real worries that we have on issues of human rights. I believe that President Clinton will be taking a decision on MFN renewal as soon as next week.

Many comments were made on the Joint Liaison Group.

Lord Archer of Sandwell

My Lords, I am grateful to the noble Baroness for allowing me to intervene. A few moments ago she gave some welcome assurances that the Governor and the Government were committed to making the voice of LegCo effective. On the subject of human rights, is there a possibility that the Governor will reconsider his decision virtually to veto the introduction of Miss Anna Wu's human rights Bill?

Baroness Chalker of Wallasey

My Lords, the noble and learned Lord anticipates a comment I was about to make. I understand that the reason that the Governor was concerned about the Wu Bill was that China has pledged to abolish any commission that would be set up by that human rights Bill. Therefore the Governor is seeking to find the best way forward to implement human rights recommendations—which may not be a commission.

I referred to the Joint Liaison Group. As we all know, the Joint Declaration commits both our governments to closer co-operation. We are determined to discharge our responsibility. But we need the support of the Chinese in those meetings. Much of the JLG's agenda is technical and legal but uncontroversial. I believe that it should not be too difficult to complete the matter on time. I believe it important to do so in the interests of individuals and businesses in Hong Kong. The noble and learned Lord, Lord Archer, asked me about the localisation of UK legislation applied to Hong Kong. That is one urgent task caught up in the backlog. If not completed, there would be an immediate legal vacuum when the UK legislation lapses on 1st July 1997. Therefore, we are conscious of those matters and seek to work on them as soon as we can.

The noble Lords, Lord Wilson of Tillyorn, and Lord MacLehose, talked about the civil service and about the preliminary working committee. We very much agree on the need for continuity in the civil service, as does China. There is no question of forbidding individual civil servants having contact with the preliminary working groups. They are free to meet. But we must bear in mind that the Chinese have made it clear that the preliminary working committee is not an organ of power. The only organs of power that decide matters are the Government of the People's Republic of China and the UK Government.

I turn to comments made by my noble friend Lord Willoughby de Broke, the noble Lord, Lord Ennals, and the noble Lord, St. John of Bletso. The human rights situation is, and will continue to be, very worrying. I cannot answer all the detailed points made by the noble Lord, Lord Ennals. I can say that we are both aware of them and seek ways to help resolve the matter where there is a problem. However, I believe that some issues are blown out of proportion.

On the critical issue of provision after 1997 for non-Chinese ethnic communities there is no question of any British dependent territory citizen becoming stateless. I understand the great feeling of my noble friend, Lord Glenarthur, the noble and learned Lord, Lord Archer and others, and the strength of comments made by the noble Lord, Lord Bonham-Carter. I shall certainly bring those remarks to the attention of my colleagues.

The assurance that wives and widows of ex-servicemen will be welcome to enter the United Kingdom to settle at any time was repeated by the present Home Secretary in a personal letter to those ladies last month. I understand the wider concerns expressed by the noble Lord, Lord Bonham-Caiter. Certainly we are aware that a small number of people in that category are concerned. It is not for me to decide the matter. I shall certainly take the issue back and see what more may be done.

Several noble Lords asked about a response to the Foreign Affairs Select Committee report. It is a most excellent and thorough report. It stimulated great debate about further steps that are necessary or desirable to reinforce the measures already in place to try to protect human rights in the territory. We are considering with the Hong Kong Government the response that we shall present to Parliament before long. I cannot comment at present on the individual matters as it is not policy to do so.

I turn finally to the hops of co-operation with China over Hong Kong. Perhaps I may say without reservation that we want to see a successful transition to Chinese sovereignty in 1997. Our door has been open all along. It remains open for discussion with the Chinese Government. There is no reason why our inability to agree on election arrangements should mean that we cannot co-operate on all the many other matters of importance to Hong Kong.

I note the recent remarks by the leader of the pro-China party, the Democratic Alliance for the Betterment of Hong Kong, that Peking realises that it cannot cut all contacts with the UK and Hong Kong governments and achieve a smooth transfer of sovereignty in 1997. I hope that there is some hope in that comment. But there is plenty of evidence that in areas other than constitutional development, Britain and China continue to co-operate. As my noble friends Lord Weir and Lord Glenarthur said, there is an important relationship with China, far greater than I think the debate has given credit for. But I believe that Britain must continue to develop that wide ranging relationship with China, not only covering the vital issues of Hong Kong but all the many other aspects of the work that we are doing.

We have today ranged far and wide across the great canvas of Hong Kong's future. It is Hong Kong's future that we have at the top of our agenda in our considerations. We remain responsible for Hong Kong's administration until 30th June 1997. We shall discharge that responsibility to the best of out ability. But we cannot do so in a vacuum. That is why we must take proper account of the views of the people of Hong Kong and spare no effort in ensuring that we work in full co-operation, consistent with our obligations under the Joint Declaration, with the future sovereign power, the People's Republic of China. The tasks are huge, the challenges enormous. But particularly after this debate, I hope that Britain, Hong Kong and China will prove at least equal to them. With the help of notable people like the noble Baroness, Lady Dunn, I know that we shall have help all the time from Hong Kong in this difficult task.

8 p.m.

Lord Glenarthur

My Lords, this has been a very thorough debate and I am deeply grateful to all those who have taken part. It has been an opportunity for those with much non-partisan but solid background know-ledge and experience of Hong Kong to bring their views to bear. To have two former governors, and the noble Baroness, Lady Dunn, in one debate is a pretty good catch when we are talking about a subject as important in one sense and as narrow as Hong Kong. To have the noble Baroness and my noble friend Lord Cromer come all the way from Hong Kong to play a part in the debate is something for which we are all grateful.

Powerful views, legitimate views, even provocative views have been expressed this afternoon. None can be dismissed lightly; they were all put forward with considerable sincerity. I am most grateful to my noble friend Lady Chalker for setting the Government's position firmly on the record, for answering many detailed points so thoroughly and for providing a degree of further reassurance. I must also acknowledge that the timing of the debate has caused her not a little inconvenience but I hope that she will forgive me.

Noble Lords will not want me to repeat any of the arguments. I believe that the debate has done three things. First, as my noble friend Lord Marlesford said, it has shown, not for the first time, the genuine concern in this House for a successful transition in Hong Kong in 1997, let alone a more general interest in Hong Kong. I sincerely hope that it will be appreciated in the territory and understood in Peking.

Secondly, it has highlighted the fragile nature of the discussions in which the Government are engaged and of which we are interested observers and legitimate commentators. We all wish those who bear the heavy burdens of the negotiations continued success. We wish them well, not least the Governor in the difficult task he has.

Thirdly, it has reminded us of the importance of bridging our difficult negotiations with an understand-ing of the mutual economic benefits which can flow between Britain and China.

There is one other point which I should make. Despite the misgivings that have been raised in some cases, the debate has been useful in one other way. I am an optimist, like the noble Baroness, Lady Dunn, and I have a firm belief that we shall all look back in 20 years or probably less, acknowledge the tensions that have waxed and waned between Britain and China in recent years and be thankful that out of them has grown an even more prosperous Hong Kong in which both countries can take pride.

With renewed thanks to those who have taken part, I beg leave to withdraw the Motion.

Motion for Papers, by leave, withdrawn.